Federal Funds Interest Rate

The interest rate at which depository institutions lend reserve balances to each other overnight, targeted by the Federal Reserve to influence economic activity.

What is Federal Funds Interest Rate?

Calculated as a volume-weighted median of overnight transactions reported in the FR 2420 form, the effective federal funds rate (EFFR) stood at 4.83% as of October 2, 2025. The FOMC sets a target range, currently 4.75-5.00% following a 50 basis point cut in September 2025, to manage inflation and employment. Banks with excess reserves lend to those needing to meet requirements, with the rate influenced by the Fed’s interest on reserve balances (IORB) at 4.90%.

Historically, the rate has ranged from near 0% during crises (e.g., 0-0.25% from 2008-2015) to over 20% in the early 1980s to combat inflation. Changes affect consumer rates; a 1% hike can increase borrowing costs by $300 annually on a $30,000 car loan. In 2022-2023, the Fed raised it from 0.25% to 5.50% to curb inflation peaking at 9.1%.

The rate serves as a benchmark for other short-term rates like SOFR (4.83% on October 2, 2025) and impacts global finance, with emerging markets often adjusting policies in response.