What is Federal Funds Rate?
The federal funds rate is the interest rate at which U.S. banks lend reserve balances to each other overnight. The Federal Open Market Committee sets a target range for this rate as its primary monetary-policy tool; changes ripple through Treasury yields, mortgage rates, and the broader cost of credit.
Live data: Federal Funds Effective Rate
Federal Reserve Economic Data (FRED) — · Monthly · 147 observations
Most recent observation: 3.64 Percent as of March 1, 2026.
Understanding Federal Funds Rate
The federal funds rate is the Federal Reserve's primary monetary-policy tool. The FOMC sets a target range at each of its eight scheduled meetings per year; the actual effective rate is determined by overnight lending between banks but is tightly managed by the Fed through reserve operations. Changes in the target range transmit through the economy via Treasury yields, mortgage rates, corporate borrowing costs, and ultimately inflation and employment.
Rate changes move in 25-basis-point (0.25 percentage point) increments in normal conditions. Larger moves — 50 or 75 basis points in a single meeting — signal that the Fed sees urgent conditions. The 2022 hiking cycle included four consecutive 75-basis-point hikes, the most aggressive stretch since Paul Volcker's 1980s anti-inflation campaign.
The FOMC also publishes a Summary of Economic Projections ('dot plot') at quarterly meetings, showing each participant's expected policy path. Markets price the expected rate path through federal funds futures; divergences between the dots and the curve drive market volatility.
How Federal Funds Rate is calculated
The FOMC sets a target range (e.g., 5.25%–5.50%). The Fed then uses interest on reserve balances (IORB) and overnight reverse-repo operations to keep the effective rate — reported daily by the New York Fed as the 'effective federal funds rate' (EFFR) — within that range. FRED series FEDFUNDS is the monthly average of EFFR; DFF is the daily value.
Historical context
Major rate cycles: Volcker's 1980 peak of 20% to crush inflation; Greenspan's 1990s 'soft landing' at 5.25%; 2008–15 zero-rate era post-financial crisis; 2015–18 gradual normalization; 2020 emergency cut to 0–0.25% for COVID; 2022–23 hiking cycle to 5.25–5.50%, the highest since 2001; cuts beginning in late 2024.
Frequently asked questions
Does the Fed control all interest rates?
No. The Fed directly controls only the overnight policy rate. Longer-term rates (2-year Treasuries, 10-year Treasuries, mortgage rates) are set by the market, influenced by but not controlled by the Fed. QE and QT are additional tools the Fed uses to influence longer rates indirectly.
When does the FOMC meet?
Eight scheduled meetings per year, roughly every six weeks. Each meeting produces a policy statement; four meetings per year also produce the Summary of Economic Projections with the 'dot plot.'
What's a basis point?
One basis point (bp) equals 0.01 percentage point. A 25-basis-point rate hike is 0.25 percentage points — e.g., raising the target from 5.00% to 5.25%.