What Is the Federal Funds Rate?

The federal funds rate can impact a host of borrowing costs, and thus the entire U.S. economy.

outside of federal reserve building in washington dc
(Image credit: Getty Images)

If you've been paying attention to chatter about elevated interest rates in recent years, you've probably come across the term "federal funds rate" – or just "fed funds rate" for short. But what exactly is the federal funds rate, and why does it matter?

The factors behind this key interest rate can be confusing, but the simplest way to think about the federal funds rate is to consider it as the very first link in the chain for all borrowing across the financial sector. As such, an increase in the fed funds rate means an increase in a host of other interest rates.

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Jeff Reeves
Contributing Writer, Kiplinger.com

Jeff Reeves writes about equity markets and exchange-traded funds for Kiplinger. A veteran journalist with extensive capital markets experience, Jeff has written about Wall Street and investing since 2008. His work has appeared in numerous respected finance outlets, including CNBC, the Fox Business Network, the Wall Street Journal digital network, USA Today and CNN Money.