Economy at a Glance - Policy Rate
Note: The effective dates for federal funds rate target range changes correspond to the day after the conclusion of the meeting.
What is the federal funds rate?
The federal funds rate is the interest rate charged by banks to borrow from each other overnight. The Federal Reserve influences this rate through monetary policy decisions.
Who sets the target range for the federal funds rate?
The Federal Open Market Committee (FOMC) sets a target range for the federal funds rate. The FOMC has eight regularly scheduled meetings each year and announces its policy decisions at 2 p.m. Eastern Time on the second day of each meeting. The FOMC is made up of members of the Board of Governors, who are based in Washington, D.C., and Federal Reserve Bank presidents from around the country.
How do changes in the target range for the federal funds rate affect the economy?
Changes in the target range for the federal funds rate influence short-term interest rates for other financial instruments, which in turn affect the spending decisions of households and businesses and thus have implications for economic activity, employment, and inflation.
How does the Federal Reserve keep the federal funds rate in the target range?
The Federal Reserve steers the federal funds rate into its target range primarily by changing the interest rate paid on reserve balances and the interest rate of its overnight reverse repurchase facility. Changes in these rates influence the borrowing activity of banks and other financial institutions.