The federal funds rate might not cross your mind often, but this pivotal figure shapes numerous facets of your financial life and the broader economy. The Federal Reserve, the nation’s central bank, periodically tweaks its target rate to maintain economic stability and control consumer prices. When the federal funds rate shifts, so do the interest rates on bank accounts and loans, influencing your savings growth and borrowing costs.
Understanding the Federal Funds Rate
The federal funds rate, set by the Federal Reserve, determines the rate at which banks can lend to each other for very short-term loans, typically overnight, to meet reserve requirements. This rate is expressed as a range, within which banks can negotiate specific rates.
The Fed’s target rate also influences the interest rates that financial institutions set for various financial products, including deposit accounts, bonds, loans, and credit cards.
Currently, the Fed’s target range is 5.25%-5.50%, with expectations that it will remain steady until inflation further decreases.
Historical Fed Interest Rate: A 50-Year Overview
Since July 2023, the Fed has kept the federal funds rate unchanged, but over the past five decades, this rate has seen significant fluctuations in response to major economic and global events. Below, we present the effective federal funds rate from 1974 to today, alongside 3-month CD rates and 10-year government bond yields, illustrating the broader impact of the Fed’s rate on other interest rates.
