Source: Board of Governors of the Federal Reserve System (US)
Release: H.15 Selected Interest Rates
Units: Percent,Not Seasonally Adjusted
Frequency: Daily, 7-Day
Notes:
For additional historical federal funds rate data, please see Daily Federal Funds Rate from 1928-1954.
The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. (1) The rate that the borrowing institution pays to the lending institution is determined between the two banks; the weighted average rate for all of these types of negotiations is called the effective federal funds rate.(2) The effective federal funds rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target.(2)
The Federal Open Market Committee (FOMC) meets eight times a year to determine the federal funds target rate. As previously stated, this rate influences the effective federal funds rate through open market operations or by buying and selling of government bonds (government debt).(2) More specifically, the Federal Reserve decreases liquidity by selling government bonds, thereby raising the federal funds rate because banks have less liquidity to trade with other banks. Similarly, the Federal Reserve can increase liquidity by buying government bonds, decreasing the federal funds rate because banks have excess liquidity for trade. Whether the Federal Reserve wants to buy or sell bonds depends on the state of the economy. If the FOMC believes the economy is growing too fast and inflation pressures are inconsistent with the dual mandate of the Federal Reserve, the Committee may set a higher federal funds rate target to temper economic activity. In the opposing scenario, the FOMC may set a lower federal funds rate target to spur greater economic activity. Therefore, the FOMC must observe the current state of the economy to determine the best course of monetary policy that will maximize economic growth while adhering to the dual mandate set forth by Congress. In making its monetary policy decisions, the FOMC considers a wealth of economic data, such as: trends in prices and wages, employment, consumer spending and income, business investments, and foreign exchange markets.
The federal funds rate is the central interest rate in the U.S. financial market. It influences other interest rates such as the prime rate, which is the rate banks charge their customers with higher credit ratings. Additionally, the federal funds rate indirectly influences longer- term interest rates such as mortgages, loans, and savings, all of which are very important to consumer wealth and confidence.(2)
References
(1) Federal Reserve Bank of New York. "Federal funds." Fedpoints, August 2007.
(2) Monetary Policy, Board of Governors of the Federal Reserve System.
Suggested Citation:
Board of Governors of the Federal Reserve System (US), Federal Funds Effective Rate [DFF], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DFF, May 29, 2024.
FAQs
The effective federal funds rate (EFFR) is calculated as a volume-weighted median of overnight federal funds transactions reported in the FR 2420 Report of Selected Money Market Rates. The New York Fed publishes the EFFR for the prior business day on the New York Fed's website at approximately 9:00 a.m.
Is the federal funds rate the same as the interest rate? ›
The federal funds rate is the interest rate banks use when lending money to each other overnight. The Federal Open Market Committee decides it and affects short-term interest rates for everyone. On the other hand, the discount rate is what Federal Reserve Banks charge banks for short-term loans.
How does the federal funds rate affect me? ›
Key Takeaways
The federal funds rate can influence short-term rates on consumer loans and credit cards. Investors monitor the federal funds rate because it has an impact on the stock market.
What is the difference between SOFR and Effr? ›
SOFR and EFFR: The Secured Overnight Financing Rate (SOFR) and the effective federal funds rate (EFFR) are both overnight lending rates, where SOFR represents lending rates with Treasuries as collateral while EFFR, the base interest rate of the US, is based on overnight loans without collaterals.
What is the Fed funds rate right now? ›
Right now, the Fed interest rate is 5.25% to 5.50%. The FOMC established that rate in late July 2023.
What is the Fed effective rate in 2024? ›
As of July 2024, the U.S. federal funds effective rate stood at 5.33 percent.
What is the Fed prime rate today? ›
United States Prime Rate. target range for the fed funds rate at 5.25% - 5.50%.
Is the federal funds rate higher than the prime interest rate? ›
Generally, the prime rate is about 3 percent higher than the federal funds rate. That means that when the Fed raises interest rates, the prime rate also goes up.
Why is it called the Fed funds rate? ›
Former Assistant Editor, Economics, Encyclopædia Britannica. federal funds rate, interest rate used for overnight interbank lending in the United States. It is also the interest rate that is adjusted by the central bank of the United States—the Federal Reserve (“the Fed”)—to conduct monetary policy.
What is the federal funds rate Why does it matter so much? ›
The federal funds rate is one of the Federal Reserve's key tools for guiding U.S. monetary policy. It impacts everything from the annual percentage yields you earn on savings accounts to the rate you pay on credit card balances, which means the fed funds rate effectively dictates the cost of money in the U.S. economy.
Just like mortgage rates, savings rates and credit card interest rates, CD rates correlate strongly with the federal funds rate. When the Federal Reserve increases its benchmark rate, interest rates across the economy, including CD rates, increase.
How to lower federal funds rate? ›
Because the interest on reserve balances rate is an administered rate, the Fed can steer the federal funds rate by adjusting the interest on reserve balances rate. In fact, interest on reserve balances is the primary tool the Fed uses to adjust the federal funds rate.
What is the federal funds rate for Effr? ›
Effective Federal Funds Rate in the United States remained unchanged at 5.33 percent on Wednesday September 4. Effective Federal Funds Rate in the United States averaged 4.61 percent from 1954 until 2024, reaching an all time high of 22.36 percent in July of 1981 and a record low of 0.04 percent in December of 2011.
How is effr calculated? ›
The effective federal funds rate (EFFR) is calculated as a volume-weighted median of overnight federal funds transactions reported in the FR 2420 Report of Selected Money Market Rates.
Why are we switching to SOFR? ›
The volumes underlying SOFR are far larger than the transactions in any other U.S. money market. This makes it a transparent rate that is representative of the market across a broad range of market participants and protects it from attempts at manipulation.
What is the 10 year CMT rate today? ›
10 Year Treasury Rate (I:10YTCMR)
10 Year Treasury Rate is at 3.65%, compared to 3.70% the previous market day and 4.29% last year. This is lower than the long term average of 4.25%. The 10 Year Treasury Rate is the yield received for investing in a US government issued treasury security that has a maturity of 10 year.
What is the effective interest rate? ›
Here are the formula and calculations: Effective annual interest rate = (1 + (nominal rate ÷ number of compounding periods))(number of compounding periods) – 1.
How does the Fed funds rate affect treasury yields? ›
Treasury yields can go up, sending bond prices lower, if the Federal Reserve increases its target for the federal funds rate (in other words, if it tightens monetary policy), or even if investors merely come to expect the fed funds rate to go up.
