What Is the Federal Funds Rate?

The federal funds rate doesn't just affect banks. It has ripple effects on the price of consumer products such as credit cards, student loans and mortgages.
Cara Smith
By Cara Smith 
Updated
Edited by Yuliya Goldshteyn

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The current Fed rate is 5.25% to 5.50%. That’s according to the Federal Open Markets Committee (FOMC), the monetary policymaking part of the Federal Reserve that holds eight scheduled meetings a year to set the federal funds rate.

What is the Fed funds rate?

The federal funds rate, or Fed rate, is the interest rate that U.S. banks pay one another to borrow or loan money overnight. It also affects interest rates on everyday consumer products, such as credit cards or mortgages.

Since banks hold reserves to conduct everyday business such as having enough liquidity and clearing payments, banks who need more reserves often borrow money from other banks.

Who sets the Federal funds rate?

The Federal Open Markets Committee sets the federal funds rate. The FOMC sets the target rate range, and sets the Fed rate to be aligned with that target range.

What is the current Fed interest rate?

Right now, the Fed interest rate is 5.25% to 5.50%. The FOMC established that rate in late July 2023. At its most recent meeting in January, the committee decided to leave the rate unchanged.

Here are the most recent Fed rates from FOMC meetings:

FOMC meeting dates

Rate change

Fed rate (as a target range)

Jan. 30-31, 2024.

None.

5.25% - 5.50%.

FOMC meeting dates

Rate change

Fed rate (as a target range)

Dec. 12-13, 2023.

None.

5.25% - 5.50%.

Oct. 31-Nov. 1, 2023.

None.

5.25% - 5.50%.

Sept. 19-20, 2023.

None.

5.25% - 5.50%.

July 25-26, 2023.

Increase of 25 basis points (or 0.25 percentage point).

5.25% - 5.50%.

June 13-14, 2023.

None.

5.00% - 5.25%.

May 2-3, 2023.

Increase of 25 basis points (or 0.25 percentage point).

5.00% - 5.25%.

March 21-22, 2023.

Increase of 25 basis points (or 0.25 percentage point).

4.75% - 5.00%.

Jan. 31-Feb 1, 2023.

Increase of 25 basis points (or 0.25 percentage point).

4.50% - 4.75%.

FOMC meeting dates

Rate change

Fed rate (as a target range)

Dec. 13-14, 2022.

Increase of 50 basis points (or 0.50 percentage point).

4.25% - 4.50%.

Nov. 1-2, 2022.

Increase of 75 basis points (or 0.75 percentage point).

3.75% - 4.00%.

Sept. 20-21, 2022.

Increase of 75 basis points (or 0.75 percentage point).

3.00% - 3.25%.

July 26-27, 2022.

Increase of 75 basis points (or 0.75 percentage point).

2.25% - 2.50%.

June 14-15, 2022.

Increase of 75 basis points (or 0.75 percentage point).

1.50% - 1.75%.

May 3-4, 2022.

Increase of 50 basis points (or 0.50 percentage point).

0.75% - 1%.

March 15-16, 2022.

Increase of 25 basis points (or 0.25 percentage point).

0.25% - 0.50%.

» RELATED: Learn what basis points are

After sitting at 0% for two years during the coronavirus pandemic, the rate has steadily climbed since March 2022, as the Federal Reserve aims to combat inflation. Since March 2022, the Fed has paused rate hikes five times: in June 2023, September 2023, November 2023, December 2023 and January 2024.

The FOMC meets next on March 19-20, 2024.

What happens when the Fed raises interest rates?

First, some context on Fed rate hikes. The Federal Reserve raises the federal funds rate to curb inflation. When it increases the Fed rate, banks pay more to borrow money from one another. When the federal funds rate rises, it doesn’t just affect banks sending and receiving money. Those banks pass on that expense to customers by charging higher interest rates on products like credit cards and mortgages. Interest rates also increase on other forms of debt, including money borrowed via credit cards, mortgages and loans. The idea is that by increasing the cost of credit, demand for goods and services will fall, causing their prices to subsequently fall, too.

Here’s why that happens: The Federal Reserve can change the federal funds rate only. But since that rate is tied to other rates and variables, those changes have wide-reaching effects. When the fed rate goes up, it’s more expensive for banks to borrow money. So it gets more expensive for consumers to borrow money, too. Anything tied to financing, including credit cards, car payments, student loans or mortgages, can get pricier.

On the other hand, a rising rate can lead to higher yields for savers and better rates for CD investors in some bank accounts.

» MORE: See our CD rates forecast

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How does the Fed raise interest rates?

The Federal Open Market Committee, a 12-member group of banking leaders from around the country, sets the federal funds rate and much of the Federal Reserve’s monetary policy. It meets eight times a year and sometimes makes rate changes — including increases or decreases — outside its scheduled meetings.

Here's the FOMC meeting schedule in 2024:

  • Jan. 30-31.

  • March 19-20.

  • April 30 - May 1.

  • June 11-12.

  • July 30-31.

  • Sept. 17-18.

  • Nov. 6-7.

  • Dec. 17-18.

What is the Federal Reserve Board?

The Federal Reserve Board is the umbrella agency that governs the Federal Reserve System. It comprises three groups: the 12 Federal Reserve Banks in the U.S., the Board of Governors and the Federal Open Market Committee.

It’s responsible for the Federal Reserve achieving its three Congressional mandates: maintaining maximum employment, steady prices on goods and services, and moderate interest rates throughout the country.

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