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The federal funds rate is the central interest rate in the U.S. financial market. It influences other interest rates such as the prime rate, which is the rate banks charge their customers with higher credit ratings. The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. The Federal Reserve boosted its benchmark rate after inflation soared to a 40-year high in 2022. The Fed started cutting in 2024 as the inflation rate dipped, but has held it steady since... The Federal Reserve lowered the federal funds rate by 25 bps to a target range of 3.75%–4.00% at its October 2025 meeting, in line with market expectations. The move followed a similar cut in September, bringing borrowing costs to their lowest level since 2022.
