Finance glossary
Federal Funds Rate
Definition
The interest rate at which U.S. banks lend reserve balances to each other overnight.
The federal funds rate is set by the Federal Reserve FOMC and is the most influential interest rate in the U.S. economy. When the Fed raises rates, borrowing becomes more expensive, slowing economic activity and reducing inflation. When it cuts rates, borrowing is cheaper, stimulating growth.
In a sentence
When the Fed raised the federal funds rate, mortgage and credit-card rates climbed soon after.
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