The central bank's main policy tool. It drives all short-term rates.
The short answer
- What is the Federal Funds Rate (Federal Funds Rate)?
- Federal Funds Rate: the rate banks charge each other for overnight loans.
- When is the Federal Funds Rate wrong?
- The market prices in a change months before it happens. You can see it now in the market data on the "Rates and yields" page. Open the rates and yields page →
Indicator limit
The market prices in a change months before it happens.
Read it with
Consumer price index: read the rate against inflation. The gap between them is the real rate.
Answers: how is the economy doing?
What it measures
The federal funds rate is the rate at which US banks lend to each other overnight, and the Federal Reserve sets its target range. It is the base price of money in the world: borrowing costs across the whole economy derive from it, and the discounting of every financial asset starts from it.
How it is set and when
The Federal Open Market Committee meets eight times a year and announces its decision with a statement and a press conference. The statement and the press conference often move the market more than the decision, because the decision itself is already priced in, while a change in the statement's tone reprices the whole rate path for the coming year.
Effect on assets
A hike makes cash and short-term instruments more attractive, so money leaves risk assets. It raises borrowing costs for companies, which squeezes their earnings, and it strengthens the dollar, which squeezes exporters. A cut does the opposite, but the reason for the cut decides the effect: a precautionary cut in a healthy economy supports stocks, while an emergency cut in a crisis usually comes alongside a collapse.
Market expectations come before the decision
The futures market on this rate prices the odds of every coming meeting in real time. Traders do not wait for the decision to know the direction. They read the priced odds and watch how they change after each economic release.
Hypothetical example
A meeting leaves the rate unchanged, as everyone expected, but the statement drops a phrase about "further tightening." The market jumps even though the decision did not change. The event was in the wording, not the number.
Read it with
Read it with the yield curve, which reflects expectations for its path, with inflation and the labor market, the two inputs to the decision, and with Net Liquidity (Net Liquidity), which describes its quantitative arm rather than its price arm.
Where to see it on the platform
The rate tracker shows the current rate and the odds for the next meeting, and the calendar lists the committee's dates.
