Federal Funds Rate

Banking & Credit

The Federal Funds Rate is the overnight interest rate banks charge each other for reserves — set by the Federal Reserve's Open Market Committee (FOMC) at eight scheduled meetings per year. It's the most important interest rate in the US economy because it cascades through every other rate: Prime, mortgages, savings yields, bond prices. The Fed raises rates to fight inflation (making borrowing more expensive, cooling demand) and lowers rates to stimulate growth. From 2022-2023, the Fed raised rates from near-zero to 5.25-5.50% to combat post-pandemic inflation. Watch Fed meetings if you have variable-rate debt or substantial cash savings.