Glossary

Federal funds rate

The interest rate at which banks lend reserve balances to each other overnight, the Federal Reserve's main policy lever.

Also called: fed funds rate, Fed rate, benchmark interest rate

The federal funds rate is the interest rate that banks and other depository institutions charge one another for overnight loans of reserves. The Federal Open Market Committee (FOMC) sets a target range for it at its meetings, held about eight times a year, and uses tools such as the interest paid on reserve balances to steer the actual rate into that range.

Because it acts as the base for other short-term rates, changes in it spread through the economy, influencing rates on credit cards, car loans, adjustable mortgages and savings accounts, and indirectly longer-term rates, stock and bond prices and the exchange rate. Lowering the rate stimulates borrowing and spending, and raising it slows them.

Financial markets watch the FOMC's statements and projections closely, and news media often report decisions as "the Fed raising or cutting rates." Between 2008 and 2015 the rate was near zero, and the Fed raised it rapidly in 2022 and 2023 to fight inflation. Critics argue that the Fed holds too much influence or that low rates feed asset bubbles, while others criticize rate hikes for harming borrowers and employment. The president does not control it, though presidents sometimes press the Fed publicly. See monetary policy and dual mandate.

Last reviewed November 8, 2026

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Related terms

Monetary policy The actions of a central bank, such as setting interest rates, to influence money, credit and economic activity. Quantitative easing A policy in which a central bank buys government bonds and other securities in large amounts to lower long-term interest rates and support the economy. Dual mandate The Federal Reserve's congressionally assigned goals of maximum employment and stable prices (with moderate long-term interest rates). Inflation A sustained increase in the general level of prices, reducing the purchasing power of money. Recession A significant, widespread decline in economic activity lasting more than a few months, often marked by falling output and rising unemployment.