Fed Funds Rate ProjectionsThis script makes projections via drawing boxes based upon changes in the fed funds rate (FRED:EFFR).
It works by turning the change in the fed funds rate into a user defined percentage (using a multiplier, by default a 1% rate of change implies a 10% change in the chart) and then drawing a box that distance away depending on the direction of the rate of change.
The size of the multiplier should depend on the duration of the asset which this is being applied to, for example, a long duration asset such as a high beta growth stock should use a larger multiplier.
Funds
Federal Funds Rate and Overnight Bank Fund RateAMEX:SPY
Comparison of the Overnight Bank Fund Rate and the Effective Federal Funds Rate.
The Fed sets a discount rate of 100 basis points above the effective federal funds rate to discourage ("penalize") banks from borrowing from its reserves. If lending banks have excess in their reserves, the borrowing banks have ease in negotiating a lower rate overnight to maintain its requirements. For this reason its a good indicator of the economy. If it becomes more difficult for banks to maintain the required reserve amount they may charge borrowing banks higher rates.
Both the Effective Federal Funds Rate and Overnight Bank Fund Rate use the same data. Except, the OBFR includes overnight Eurodollar transaction data and certain overnight “selected deposit” transactions that are placed at domestic bank branches controlled by a U.S. banking office.
The indicator includes the lower and upper bound target rate set by the Federal Reserve.
An interesting note:
Notice the jump in the Overnight Bank Rate followed by Fed buying to provide liquidity and lower rates in Sept 2019.
