Federal Funds Rate
The overnight interest rate at which US banks lend reserves to each other, set by the Federal Reserve.
What is Fed Funds Rate?
The federal funds rate is the interest rate at which US depository institutions (primarily commercial banks) lend reserve balances to each other overnight on an uncollateralized basis. The Federal Open Market Committee (FOMC) sets a target range for this rate as its primary monetary policy tool. Raising the rate makes borrowing more expensive throughout the economy — reducing inflation; lowering it stimulates borrowing and investment during downturns. The fed funds rate is the most closely watched interest rate in global finance because it cascades through all other US interest rates, from mortgages to corporate bonds.
Example
Between March 2022 and July 2023, the FOMC raised the federal funds rate from 0.0–0.25% to 5.25–5.50% across 11 meetings — the sharpest tightening cycle since Paul Volcker's 1980s campaign against inflation.