The federal funds rate is the interest rate banks charge each other for overnight loans, and the Federal Reserve sets a target range for it to steer the economy.
The Fed's FOMC meets eight times a year and sets a target range (for example 4.25% to 4.50%). Raising the range makes borrowing more expensive and cools the economy and inflation; cutting it makes borrowing cheaper and supports growth and jobs.
Why it matters to you
The fed funds rate flows through to credit card APRs, savings account yields, car loans and, indirectly, mortgage rates.
The federal funds rate is the interest rate banks charge each other for overnight loans, and the Federal Reserve sets a target range for it to steer the economy.
Who sets the fed funds rate?
The Federal Open Market Committee (FOMC) of the Federal Reserve sets the target range.
Does the fed funds rate affect mortgages?
Indirectly. Mortgage rates follow longer-term Treasury yields, which react to what markets expect the Fed to do.
