Glossary
Federal funds rate
The overnight rate at which US banks lend reserves to each other; the Federal Reserve sets a target range for it.
On this page
The federal funds rate is the interest rate at which banks and some other institutions lend reserve balances to each other overnight, without collateral. The Federal Open Market Committee does not set a single number; it announces a target range, usually a quarter of a percentage point wide, such as 4.25% to 4.50%. It is the Fed's main policy lever, and because it anchors the shortest end of the yield curve it ripples into prime rates, credit cards, savings yields, mortgages and stock valuations.
How it works
The Fed steers the market rate into its target range mainly with administered rates rather than by trading reserves. It pays interest on reserve balances (IORB), which sets a floor banks will not lend below, and it offers an overnight reverse repurchase facility to money funds and others. The New York Fed publishes the actual market outcome each business day as the effective federal funds rate (EFFR), a volume-weighted median of overnight trades.
Recent history
The range sat at 0%–0.25% from December 2008 to December 2015 and again from March 2020 to March 2022. To fight inflation, the FOMC then raised it to 5.25%–5.50% by July 2023, a 22-year high, and held it there until a first cut in September 2024. For the current range, check the latest FOMC statement.