Federal funds rate

The interest rate on overnight, unsecured loans of reserve balances between depository institutions in the United States. The Federal Reserve steers it toward a target range to influence financial conditions.

Federal Open Market Committee: The Federal Reserve body that sets monetary policy, including a target range for the federal funds rate. It chooses the target range that guides trading in the federal funds market.
Prime rate: A reference lending rate banks set for their most creditworthy customers. U.S. banks commonly adjust it after changes in the federal funds target.
Federal Reserve System: The United States' central banking system, established by Congress in 1913. Its structure and authorities provide the institutional setting for federal funds policy.
Secured Overnight Financing Rate: A broad measure of the cost of borrowing cash overnight using U.S. Treasury securities as collateral. SOFR is secured and Treasury-backed, unlike the unsecured federal funds loans.
Federal funds target range: The range the Federal Reserve sets as its desired level for the federal funds rate. This policy target is the benchmark the market rate is meant to track.
Adjustable-rate mortgage: A home loan whose interest rate can change over time according to a specified benchmark or formula. Federal funds policy can influence the short-term rates used in some mortgage adjustments.
Federal Reserve Act: The 1913 U.S. law that created the Federal Reserve System and defined its central banking framework. It established the institution that later developed the federal funds market and rate policy.
Effective federal funds rate: The volume-weighted median interest rate on overnight federal funds transactions, published by the Federal Reserve Bank of New York. It is the measured market rate, distinct from the FOMC’s target range.
Interest on reserve balances: Interest the Federal Reserve pays banks on reserve balances held at Federal Reserve Banks. Its administered rate helps anchor overnight rates, including the federal funds rate.
Yield curve: A graph of bond yields across maturities for debt of similar credit quality. Expected changes in the federal funds rate can reshape short-term yields and the curve’s slope.

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