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General TradingI
Interest on Reserve Balances
The interest rate paid by the Federal Reserve to commercial banks on reserves held at the central bank. It is a key tool used to implement monetary policy and influence the federal funds rate.
Example
“For example, if the Federal Reserve raises the interest on reserve balances from 5.25% to 5.50%, it encourages banks to keep more funds at the Fed rather than lending, effectively tightening monetary conditions.”