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The Federal Reserve System implements monetary policy largely by focusing on the federal funds rate That is the rate of interest that banks charge each other for in a single day loans of federal funds , that are the reserves held by banks on the Fed. This fee is actually determined by the market and is not explicitly mandated by the Fed. The Fed due to this fact tries to align the efficient federal funds charge with the focused charge by including or subtracting from the cash supply via open market operations. The Federal Reserve System usually adjusts the federal funds price target by 0.25% or 0.50% at a time.
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