The federal funds rate is the target interest rate set by the Federal Open Market Committee (FOMC) at which U.S. depository institutions lend reserve balances to each other overnight — the primary tool the Federal Reserve uses to implement monetary policy and influence borrowing costs across the economy.
The federal funds rate is not a rate the Fed directly controls — it is a target range (e.g., 5.25%–5.50%) that the Fed influences through open market operations (repos, reverse repos, and outright Treasury purchases and sales) conducted by the Federal Reserve Bank of New York. The effective federal funds rate (EFFR) is the volume-weighted median of overnight federal funds transactions, published daily by the New York Fed (newyorkfed.org/markets/reference-rates/effr). The FOMC meets 8 times per year to review the target rate. Decisions are announced via a post-meeting statement and reflected in the 'dot plot' — the FOMC's projection of where individual members expect rates to be at year-end over the next several years. Both the statement and the dot plot are published at federalreserve.gov/monetarypolicy/fomccalendars.htm. The federal funds rate is the anchor of the U.S. interest rate stack. Changes propagate to: (1) Prime Rate (typically Fed Funds + 3%) → HELOC, credit cards, some SBA 7(a) variable rates; (2) SOFR → most adjustable-rate commercial loans; (3) 10-year Treasury yield (indirectly) → fixed-rate commercial mortgages and SBA 504 debenture rates. For small business borrowers, every 25bps FOMC move translates to ~$25/year per $10,000 of variable-rate debt.
For variable-rate loans, the transmission is direct: Prime Rate = Fed Funds upper bound + 3%, and most SBA 7(a) variable rates are priced at Prime + a fixed spread. When the FOMC raises rates 25bps, your variable-rate SBA loan cost rises ~25bps (about $2,083/year on a $1M loan). Fixed-rate commercial loans are less directly affected but respond to the 10-year Treasury yield, which moves partly based on Fed policy expectations. See federalreserve.gov/monetarypolicy for current rate decisions.
The current FOMC target range, recent meeting statements, and the dot plot are published at federalreserve.gov/monetarypolicy/fomccalendars.htm. The daily Effective Federal Funds Rate (EFFR) is published by the Federal Reserve Bank of New York at newyorkfed.org/markets/reference-rates/effr. FOMC decisions are announced at 2:00 PM ET on meeting days.
The federal funds rate is the interbank overnight lending rate (the Fed's policy target). The prime rate is the benchmark rate that commercial banks offer to their most creditworthy customers — historically, it has been set at Fed Funds upper bound + 3%. When the Fed raises or lowers rates, prime rate changes within days. Most small business lines of credit and SBA 7(a) variable loans are priced relative to prime. See federalreserve.gov for current prime rate context.