The federal funds rate is the interest rate banks pay to borrow reserves, the balances they keep at the Federal Reserve, overnight and without collateral. The Fed influences that rate rather than fixing it: its Federal Open Market Committee (FOMC) sets a target range, 3.75% to 4.00% after the October 28, 2026 meeting, and steers trading into that band with rates the Fed itself pays and charges. Each morning the New York Fed reports where the previous day's trades settled, the effective federal funds rate. So much short-term borrowing is priced off overnight money that a change in the range reaches Treasury bills, savings accounts and loans; the bills themselves are covered on the US Treasuries hub.
What is the difference between the target range and the effective rate?
The target range is the FOMC's setting, a band 0.25 point wide; the effective rate is the market result, the median rate on the previous day's overnight trades.
Until December 16, 2008 the committee announced a single number, such as the 5.25% target it reached in June 2006. Since then it has set a range, which makes the effective federal funds rate (EFFR) the figure to watch for where money actually changes hands. The New York Fed builds it from overnight trades that banks report on the Fed's FR 2420 form, ranks them by rate, takes the volume-weighted median and publishes the result at about 9:00 a.m. Eastern on the next business day, together with percentile ranges and total volume. Almost all of the lending comes from government-sponsored enterprises, chiefly the Federal Home Loan Banks: about 97% of volume, according to a 2024 Federal Reserve research note, which found US branches of foreign banks doing around 90% of the borrowing in early 2024.
Worked example: One night of fed funds at the October 29, 2026 rate
A Federal Home Loan Bank lends $500 million overnight to a bank at 3.88%, the effective rate for October 29, 2026.
- Interest for one night: $500,000,000 × 3.88% × 1 ÷ 360 = $53,888.89
- A loan made on a Friday runs until Monday, three days: $161,666.67
- The borrower can leave the cash in its reserve account and earn 3.90% from the Fed
- The 0.02-point gap is worth about $100,000 a year on $500 million, under $300 a night, before costs
A margin that thin means costs decide who does the trade. Fed researchers found that FDIC fees, charged on domestic banks' assets, make it less profitable for US banks, which is why branches of foreign banks do most of the borrowing.
How does the Fed keep the effective rate inside its range?
It sets the rates that banks and money funds can earn or pay at the Fed itself, so few lenders accept less and few borrowers pay more.
With reserves plentiful, the Fed no longer adjusts their supply day by day. Under what it calls an ample-reserves approach it moves the rates it administers instead, and the October 28 statement said the committee is continuing that policy. Each tool covers a different group of institutions:
| Rate | Level after October 28, 2026 | Who can use it | Job in the system |
|---|---|---|---|
| Overnight reverse repo (ON RRP) | 3.75% | Money market funds, Federal Home Loan Banks and other approved firms, up to $160 billion each a day | Floor: these lenders can always earn it from the Fed |
| Effective federal funds rate | 3.88% on Oct 29 | Market result | Where trades actually settled |
| Interest on reserve balances (IORB) | 3.90% | Banks and other depository institutions | Banks have no reason to lend overnight for less |
| Standing repo operations | 4.00% | Primary dealers and banks that sign up, against Treasury and agency securities | Ceiling on secured overnight borrowing |
| Discount window primary credit | 4.00% | Banks in sound financial condition | Backstop loans straight from the Fed |
The effective rate tends to sit just under IORB. Federal Home Loan Banks cannot earn interest on reserves, so they lend to banks for a little less, and they will not go below the reverse repo rate they could get from the Fed instead. Fed researchers measured the gap below IORB at about 7 basis points in early 2024; since September 17, 2026 it has been 2.
What is the federal funds rate now?
The target range is 3.75% to 4.00%, set at the FOMC's September 15-16, 2026 meeting and left unchanged on October 28.
The October decision passed 10 to 2, with Lisa D. Cook and Beth M. Hammack dissenting because they preferred a further quarter-point increase. The committee's next scheduled meeting ends December 9, 2026, and brings new economic projections. The table lists the last seven changes and the effective rate on the day each took effect.
| Took effect | Move | New target range | Effective rate that day |
|---|---|---|---|
| Sept 19, 2024 | Cut of 0.50 point | 4.75% to 5.00% | 4.83% |
| Nov 8, 2024 | Cut of 0.25 point | 4.50% to 4.75% | 4.58% |
| Dec 19, 2024 | Cut of 0.25 point | 4.25% to 4.50% | 4.33% |
| Sept 18, 2025 | Cut of 0.25 point | 4.00% to 4.25% | 4.08% |
| Oct 30, 2025 | Cut of 0.25 point | 3.75% to 4.00% | 3.87% |
| Dec 11, 2025 | Cut of 0.25 point | 3.50% to 3.75% | 3.64% |
| Sept 17, 2026 | Increase of 0.25 point | 3.75% to 4.00% | 3.88% |
Each time, the effective rate moved by the full step on the first day. Since the latest change it has printed 3.88% on every one of the 30 business days through October 29, 2026, on $83 billion to $121 billion of trades a day, a small market next to the roughly $3 trillion a day behind SOFR.
How does the federal funds rate reach bills, savings and loans?
Through every rate priced off overnight money: some follow within a day, some move weeks ahead of the Fed, and some barely move at all.
That is a convention, not a rule, and the Fed's H.15 release, which reports the prime rate posted by a majority of the 25 largest US-chartered banks, shows it holding: 6.75% through mid-September 2026 and 7.00% once the increase took effect.
- Prime-based loans: in full, within a day. Home equity lines, many credit cards and some small-business loans charge the prime rate plus a margin, so a quarter-point move changes their cost almost at once.
- Floating business loans: at the next reset. Many now reset off SOFR, the overnight Treasury repo rate, which moves with the range.
- Treasury bills: ahead of the decision. A bill locks in a rate for weeks or months, so its yield reflects where investors expect overnight rates to be over that time. How Fed rate decisions affect T-bill rates shows bills pricing the September 2026 increase in advance, and T-bill rates today has current yields.
- Savings and CDs: late and partial. Banks set deposit rates themselves. The FDIC's national average is 0.38% for savings and 1.76% for a 12-month CD, both well below the effective rate; how high-yield savings accounts work explains how banks decide.
- Fixed-rate mortgages: indirectly. They follow longer Treasury yields, which add a term premium to the expected path of short rates. Freddie Mac's average 30-year rate went from 6.76% on September 10, 2026 to 7.40% on October 8, a rise of 0.64 point against the Fed's 0.25, while the weekly average 10-year Treasury yield climbed from 4.89% to 5.26% over the same weeks.
Worked example: What the September 2026 increase did to two variable-rate balances
A household carries a $48,000 home equity line at prime plus 0.50 point and a $6,000 card balance at prime plus 14.00 points, an illustrative margin.
- Home equity line: 7.25% before, 7.50% after; monthly interest $290.00, then $300.00
- Credit card: 20.75% before, 21.00% after; monthly interest $103.75, then $105.00
- Added cost: $11.25 a month, or $54,000 × 0.25% = $135 a year
Monthly interest here is balance × rate ÷ 12; card issuers apply a daily rate, which changes the cents but not the result. A bank that passed the whole quarter point through to $10,000 of savings would pay $25 more a year, and nothing obliges it to.
How is the federal funds rate different from the discount rate, prime rate and SOFR?
The fed funds rate is a market rate for unsecured overnight loans; the others are what the Fed charges, what banks charge customers, or what secured borrowers pay.
| Rate | Set by | Who pays it | Level |
|---|---|---|---|
| Federal funds target range | The FOMC | Nobody directly; it is a target | 3.75% to 4.00% |
| Effective federal funds rate | Trading, measured by the New York Fed | Banks borrowing reserves overnight without collateral | 3.88% on Oct 29, 2026 |
| Discount rate (primary credit) | Reserve Banks, with Board approval | Banks borrowing from the Fed's discount window | 4.00% |
| Prime rate | Each bank, by convention 3 points over the top of the range | Bank customers with prime-based loans | 7.00% |
| SOFR | Trading, measured by the New York Fed | Borrowers of cash against Treasury collateral | 3.94% on Oct 29, 2026 |
The discount rate and the standing repo rate both sit at the top of the range, while the range itself is not a rate anyone pays.
What do people get wrong about the federal funds rate?
The most common mistake is treating it as a rate consumers pay, when it is a target for overnight lending among banks and a few other institutions.
- Quoting one number. There has been no single target since December 2008. Give the range, or the effective rate with its date.
- Mixing it up with the discount rate. The Fed lends to banks at the primary credit rate, not at the fed funds rate.
- Reading direction from the level. The range has stood at 3.75% to 4.00% three times: after an increase in November 2022, after a cut in October 2025 and after another increase in September 2026. The level alone says nothing about which way the next move will go.
- Expecting fixed rates to change. Only variable rates reset. A fixed-rate mortgage, a CD or a Treasury bill already held keeps its rate until it ends.
- Assuming deposits keep pace. Passing a move through to savers is each bank's choice, and the national averages trail the effective rate by a wide margin.