One reason the target federal funds rate may not equal the actual federal funds rate is because:

Question

Quizplus · Accepted Answer

The attainment of the target federal funds rate involves forecasting reserve demand, which is not always accurate. Therefore, the actual federal funds rate may not equal the target rate. Option A is incorrect because the Fed can intervene to keep the actual rate close to the target rate using open market operations. Option B is incorrect because the target rate is affected by factors such as inflation, unemployment, and economic growth, rather than just reserve demand. Option D is incorrect because the actual and target rates can differ due to various economic factors.

One Reason the Target Federal Funds Rate May Not Equal