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Federal Funds Rate

Glossary

The Federal Funds Rate is the interest rate at which banks lend excess reserves to each other overnight. It is set by the Federal Reserve and is one of the most influential interest rates in the U.S. economy.

How It Impacts the Economy:

  • Higher Fed rates → More expensive borrowing → Slower economic growth.
  • Lower Fed rates → Cheaper borrowing → More consumer spending & investment.

The Fed adjusts this rate to control inflation, influence employment, and stabilize the economy. Investors closely watch rate changes because they affect mortgage rates, stock markets, and bond yields.