I'm trying to understand the "Fed interest rate".
"Financial institutions are obligated by law to maintain certain levels of reserves... The bank can borrow the requisite funds from another bank that has a surplus in its account with the Fed. The interest rate that the borrowing bank pays to the lending bank is negotiated between the two banks. The weighted average of this rate across all such transactions is the federal funds effective rate."
So, the banks lend to each other, and the interest rate they negotiate. Seems like the interest rate can be any. How does it depend on the Fed's interest rate?
"The federal funds target rate is set by the governors of the Federal Reserve, which they enforce by open market operations and adjustments in the interest rate on reserves. The target rate is almost always what is meant by the media referring to the Federal Reserve "changing interest rates." The actual federal funds rate generally lies within a range of that target rate, as the Federal Reserve cannot set an exact value through open market operations."
What does this exactly mean? What is the "target" rate, and why do the banks care about it at all?