What is the term for the market where banks lend reserve funds to each other at interest rates determined by the Federal Reserve?

The Federal Funds Market is the correct term for the market where banks lend reserve funds to each other. In this market, financial institutions trade excess reserves, typically overnight, and the interest rates at which these transactions occur are influenced by the Federal Reserve’s monetary policy. The rates set by the Fed impact how much banks are willing to lend to each other, and these are called the federal funds rates.

The Federal Funds Market plays a critical role in the broader financial system, as it helps maintain liquidity among banks and stabilizes the banking system overall. Banks with surplus reserves can lend to those with deficits, ensuring that all institutions meet their reserve requirements. The Federal Reserve may adjust its monetary policy, which can lead to changes in the federal funds rate, guiding overall economic activity.

The overnight lending market might seem relevant, but it is more a description of the type of transactions occurring within the Federal Funds Market rather than a distinct market itself. The capital market refers to the marketplace for buying and selling equity and debt instruments, which is not directly involved in the lending of reserves between banks. The discount window is a facility provided by the Federal Reserve where banks can borrow money, but this is different from the interbank lending that occurs in the Federal Funds Market.