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The conduct of monetary policy is most often interpreted in terms of the federal funds target rate set by the Federal Open Market Committee (FOMC), at least until recently when this rate effectively reached its zero bound and additional actions were then implemented. The federal funds rate is the interest rate at which private depository institutions, typically banks, lend balances held with the Federal Reserve to other depository institutions overnight. By targeting a particular value for that rate, the Federal Reserve seeks to adjust the liquidity provided to the banking system through daily operations.
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