The Federal Funds Rate is the interest rate at which institutions lend funds maintained at the Federal Reserve (“Fed”) to other institutions. The Fed Funds Rate is often looked at as a benchmark for other interest rates and has a profound influence on overall economic activity as its level can either help to stimulate the economy or control inflation pressures. The Fed’s Federal Open Market Committee (FOMC) sets targets for the Fed Funds Rate and looks to achieve these targets through their own open market operations. Following the market meltdown of 2008 – early 2009, the Fed adopted an accommodative stance by lowering interest rates, through various operations including quantitative easing, to historic lows with an overarching goal of stimulating the economy through less expensive sources of credit. Now that the economic recovery is getting to a point where the Fed believes that the U.S. economy may be able to stand on its own two legs, the Fed will be in a position to tighten (i.e. be less accommodative) by raising their Fed Funds target rate. This then begs the question as to which asset classes have historically fared better, from a total return perspective, when the Federal Funds rate was increased in previous years.Read more