How does the central bank changing interest rates change interest rates in the commerical banking sector? I understand that the federal reserve manipulates the federal fund rate in order to change interest rates in the wider banking sector. What I am struggling to understand is how the changing the federal funds rate changes the interest rate charged by commercial banks, e.g. Bank of America, Wells Fargo, etc.
The federal fund rate is a cost for the commercial banks. They borrow at the federal fund rate and then they lend to the consumers.
The federal fund rate variation impacts the lending cost of the banks directly.
It's how it changes the interest rate charged by commercial banks.