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The Federal Funds Rate

The federal funds rate1 is the FOMC's main policy rate. Changes in the federal funds rate trigger changes in other short- and medium-term interest rates, the foreign exchange value of the U.S. dollar and other asset prices that influence households' and businesses' spending and investment decisions.

To provide more accommodation during the financial crisis and the deep recession that followed, the FOMC cut the federal funds rate to its effective lowest level, where it remained until December 2015. At that time, the Committee voted to increase the federal funds rate for the first time since mid-2006. In doing so, it noted that "economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate."2 Including the initial move, the Committee increased the federal funds rate in 25 basis point increments nine times over three years. The most recent increase occurred in December 2018 when the target range was increased to 2.25 to 2.5 percent.3 The Committee maintained that range until July 2019 when, citing the implications of global developments for the economic outlook and muted inflation pressures, the FOMC voted to reduce the federal funds rate range by 25 basis points.4 The Committee reduced the range an additional 25 basis points in September 2019 and again in October 2019.

Federal Funds Rate

Notes: The real federal funds rate is the effective rate minus 12-month core PCE inflation. Source: U.S. Federal Reserve Board and U.S. Bureau of Economic Advisors from Haver Analytics.


1 To be precise, certain financial institutions hold reserve balances at the Federal Reserve (depository institutions, Federal Home Loan Banks, Fannie Mae and Freddie Mac, etc.). The federal funds rate is the interest these institutions charge when they lend reserves to other institutions overnight.

2 Federal Open Market Committee, 2015, press release, Washington, DC, December 16.

3 More information is available online.

4 More information is available online.

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