The federal funds rate is the interest rate that banks charge one another for short-term (typically overnight) loans. When the Federal Reserve uses open-market operations to sell government bonds, the quantity of reserves in the banking system , banks' demand for borrowed reserves ? , and the federal funds rate ? . "Federal funds rate - This rate is the interest rate charged on reserves among member banks for overnight use in amounts of $1 million or more. The federal funds rate changes daily in response to the borrowing banks' need and is considered the most volatile rate. The fed funds rate target is the interest charged for fed funds loans. Both the fed funds rate and the reserve requirement are methods of implementing monetary policy. That is how central banks, like the Fed, manage the money supply to achieve healthy economic growth. Their goal is to prevent high inflation at all costs.