# What global or external factors influence a country's federal funds rate? **URL:** \ **Category:** In My Humble Opinion\ **Created:** [July 1, 2022, 12:35am UTC](https://boards.straightdope.com/t/what-global-or-external-factors-influence-a-countrys-federal-funds-rate/967215 "2022-07-01T00:35:22Z")\ **Posts on this page:** 6\ **Page:** 1
**Author:** ![Octagon](https://avatars.discourse-cdn.com/v4/letter/o/2acd7d/32.png) [@Octagon](https://boards.straightdope.com/u/Octagon)\ **Post date:** [July 1, 2022, 12:35am UTC](https://boards.straightdope.com/t/what-global-or-external-factors-influence-a-countrys-federal-funds-rate/967215/1 "2022-07-01T00:35:22Z")
I’ve looked up this question numerous times but keep hitting a wall. ---
**Author:** ![Northern\_Piper](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/northern_piper/32/5304_2.png) [@Northern\_Piper](https://boards.straightdope.com/u/Northern_Piper)\ **Post date:** [July 1, 2022, 12:38am UTC](https://boards.straightdope.com/t/what-global-or-external-factors-influence-a-countrys-federal-funds-rate/967215/2 "2022-07-01T00:38:36Z")
What’s a “federal funds rate”? ---
**Author:** ![Octagon](https://avatars.discourse-cdn.com/v4/letter/o/2acd7d/32.png) [@Octagon](https://boards.straightdope.com/u/Octagon)\ **Post date:** [July 1, 2022, 12:53am UTC](https://boards.straightdope.com/t/what-global-or-external-factors-influence-a-countrys-federal-funds-rate/967215/3 "2022-07-01T00:53:58Z")
“interest rate that banks charge other institutions for lending excess cash to them from their reserve balances on an overnijght basis” (investopedia) ---
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [July 1, 2022, 1:43am UTC](https://boards.straightdope.com/t/what-global-or-external-factors-influence-a-countrys-federal-funds-rate/967215/4 "2022-07-01T01:43:59Z")
It’s called the Fed Funds Rate only in the U.S. But the central bank of every nation with its own currency has a similar benchmark rate. Controlling short term interest rates is the principal tool of **monetary policy** , that’s what you want to google, e.g. > **[Monetary Policy Meaning, Types, and Tools](https://www.investopedia.com/terms/m/monetarypolicy.asp)** > > Monetary policy is a set of actions available to a nation's central bank to achieve sustainable economic growth by adjusting the money supply. The essential aim is to set interest rates at a level that balances steady growth with steady and low inflation and unemployment, and usually a stable exchange rate. Global factors? The state of the global economy, especially major trading partners, is important for expectations of domestic growth. Energy and commodity prices that contribute to inflation are set by global markets. Significant strengthening or weakening of the currency. ---
**Author:** ![Exapno\_Mapcase](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/exapno_mapcase/32/1051_2.png) [@Exapno\_Mapcase](https://boards.straightdope.com/u/Exapno_Mapcase)\ **Post date:** [July 1, 2022, 3:31am UTC](https://boards.straightdope.com/t/what-global-or-external-factors-influence-a-countrys-federal-funds-rate/967215/5 "2022-07-01T03:31:35Z")
If the answer isn’t “literally everything” then the country is in big, big trouble. ---
**Author:** ![LSLGuy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/lslguy/32/5813_2.png) [@LSLGuy](https://boards.straightdope.com/u/LSLGuy)\ **Post date:** [July 2, 2022, 11:19am UTC](https://boards.straightdope.com/t/what-global-or-external-factors-influence-a-countrys-federal-funds-rate/967215/6 "2022-07-02T11:19:13Z")
Expanding a bit, the larger the country the more they have freedom to set their internal short-term rates appropriately for their local situation. The smaller the country the more they have to accept that the “global going rate” (“GGR” my own vague term, don’t try to google this) or something close to it is going to be forced on them no matter whether that rate is a good or a bad fit for their economy at the time. The more exposed a country is to exports, and especially to imports, the more the GGR will apply to them, again whether they like it or not. The more “open” their financial system the more that’s true. An “open” financial system is one with a readily convertible currency, financial markets that (largely) lack capital controls and which markets are relatively larger for the size of their economy, etc. Countries whose trade patterns are heavily biased towards just one or two trading partners will find their rates driven more by those partners’ rates than the more expansive definition of what I’m calling GGR. There are a lot of other factors, but these are the biggies. Historically the USA could pretty well set its short-term rate with no thought to the rest of the world. Increasingly, if the USA sets a rate that is enough out of step with the GGR, there will be harmful consequences to the USA due to reactions from the other large open economies’ governments and investors. Rather than as it was before where we effectively unilaterally exported any/all harmful consequences onto the rest of the world.