Economy
Federal Funds Rate
The interest rate at which banks lend reserves to each other overnight, set by the Federal Reserve.
Definition
The federal funds rate is the target interest rate set by the Federal Open Market Committee (FOMC) at which commercial banks borrow and lend their excess reserves to each other overnight. It is the most important interest rate in the US economy because it influences all other interest rates — mortgages, credit cards, savings accounts, and business loans. When the Fed raises rates, borrowing becomes more expensive, which slows economic activity and helps control inflation. When the Fed cuts rates, borrowing becomes cheaper, stimulating spending and investment. The rate has ranged from 0% (2008-2015, 2020-2022) to over 20% (1980-1981).