Fed Funds Rate Explanation

This video explains what the federal funds rate is and how the Feds open market operations affect this rate.  The speaker explains the difference between the federal funds rate and the target rate.  The target rate is the rate at which the Federal reserve wants member banks to lend reserves to each other on an overnight basis. 

The speaker explains how banks with excess reserves will lend money to banks with a shortage in their reserve balance which is mandated to be at a certain percentage according to the federal reserve.  He then moves on to talk about how an increase in the money supply will increase the banks reserves, thereby decreasing the demand for overnight funds.  This lessened demand results in a lower lending rate between the banks.  The federal reserve can do this by purchasing treasury securities in the open market until banks start lending to each other at the Fed's target rate.  This method of controlling the money supply is a part of the fed's open market operations.