As is clear in chart 1, the Federal Reserve was generally successful in keeping the federal funds rate from spiking above the target rate; indeed, the effective federal funds rate was somewhat below the target rate at times.
Nonetheless, the volatility of the federal funds rate in recent months reflects the extent to which daily changes in demand for reserve balances have been unusually difficult to predict. 4  3  Specifically, depository institutions hold balances at Federal Reserve Banks, and the federal funds rate is the overnight interest rate at which these balances are traded.