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Federal funds rate is a rate at which banks can borrow extra money at an overnight market. This can be viewed as 'banks' cost' since when people want to lend from certain bank, the bank will often get the money not from some new deposits it itself attracts but from the overnight market. Consequently if the Fed funds rate drops they can afford to lend money ...


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The "Roaring 20s" was a period of overheating (in today's lingo). Very similar to the 'dot-com' bubble in the 1990s. So the stock market was a symptom, not a cause. In both cases the bubble burst (1929 and 2000 respectively). But in the dot-com case, the Fed lowered interest rates and increased liquidity, thus avoiding a depression. It's amazing to ...


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The Fed doesn't cut mortgage rates by buying MBS. MBS didn't even exist until 1980s. The fed funds rates affects the rate at which banks can borrow from the fed, and hence the rate banks are willing to lend to people. Only in the case of the adjustable rate mortgage (ARM) does the fed rate directly affect the mortgage rate. Almost all mortgages rates are ...


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The Fed funds rate is the rate at which commercial banks can borrow reserves on the overnight market (see this explanation at Investopedia). As such it affects all other interest rates banks charge since when they can borrow more cheaply they can also lend money cheaply to consumers. This affects among others also student loans (when they are provided by ...


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