The last time the Fed changed rates between meetings was a quarter-point cut in October 1998, when the central bank was moving aggressively to counter worldwide financial turmoil caused by the Asian currency crisis. This time around, the Fed said the spreading slowdown sparked the sudden move. There was more evidence of ebbing growth in three economic reports released Thursday. This is a fancy way of saying selling or buying government bonds. If the fed wants to raise rates, it sells government bonds to banks.
Banks pay for the bonds in cash.
That means banks have less money to lend out, so interest rates rise. In the reverse, the Fed buys bonds to lower rates. It pays banks cash for the bonds, and the banks have more money to lend, so rates drop. The federal funds rate or the discount rate. The federal funds rate is what the Fed charges banks for borrowing money from the Fed to meet reserve requirements.