What the federal funds rate measures
Banks lend each other the reserves they hold at the Federal Reserve overnight, and the interest they charge on those loans is the federal funds rate. The Federal Open Market Committee (FOMC) does not set the rate directly; it announces a target range a quarter of a percentage point wide and steers the market rate into it, mainly by setting the interest it pays banks on reserve balances. The line on this chart is the effective rate – the volume-weighted median of actual trades – averaged over each month.
How to read this chart
Long flat stretches are periods when the Fed held policy steady. Staircase climbs are tightening cycles, when the FOMC raised the target meeting after meeting to slow demand and inflation; steep drops are easing cycles, usually at the start of a recession (the grey bands). Periods where the line sits on the floor near zero – 2009–2015 and 2020–2022 – are when the Fed had cut as far as it could and relied on bond purchases instead.
The latest reading in context
- At 3.88%, the latest reading is above its 5-year average of 3.83% and above its 10-year average of 2.46%.
- Of all 868 monthly readings since July 1954, 45% were lower than today’s and 55% were higher.
- Direction: up 0.13 points over the past month; up 0.24 points over the past six months; down 0.21 points over the past year.
- The highest value on record is 19.10% (June 1981, 45 years ago); the lowest is 0.05% (April 2020, 6 years ago).
- The full history spans 10 US recessions, shaded grey on the chart.
Why it matters
Almost every short-term rate in the US economy is priced off the fed funds rate: the prime rate that banks charge their best customers is set three points above it, and credit cards, home equity lines, adjustable-rate loans and savings and money market yields follow within weeks. Long-term rates such as 30-year mortgages respond less directly, through expectations of where the Fed will take the rate in coming years. For savers, a higher fed funds rate means better yields on cash; for borrowers and for stock valuations it means a higher cost of money.
What moves the federal funds rate
- Inflation relative to the Fed’s 2% target (measured with PCE prices)
- The strength of the labor market – the second half of the Fed’s dual mandate
- Financial stress: crises usually bring fast, deep cuts
- The FOMC’s own projections, published four times a year in the “dot plot”
Key moments in its history
- 1981Under Chair Paul Volcker the monthly average passed 19% to break double-digit inflation – the highest level on record.
- 2001–2003Cut from 6.5% to 1% after the dot-com bust and the 9/11 attacks.
- Dec 2008Target lowered to 0–0.25% during the financial crisis, where it stayed for seven years.
- Mar 2020Returned to zero in two emergency moves as the pandemic hit.
- 2022–2023The fastest hiking cycle since the 1980s took the target to 5.25–5.50% to fight post-pandemic inflation.
Federal Funds Rate data tables
Average by decade
| Decade | Average | High | Low |
|---|---|---|---|
| 2020s (so far) | 2.87% | 5.33% | 0.05% |
| 2010s | 0.61% | 2.42% | 0.07% |
| 2000s | 2.96% | 6.54% | 0.12% |
| 1990s | 5.15% | 8.29% | 2.92% |
| 1980s | 9.97% | 19.10% | 5.85% |
| 1970s | 7.10% | 13.78% | 3.30% |
| 1960s | 4.18% | 9.19% | 1.17% |
| 1950s | 2.36% | 4.00% | 0.63% |
Last 12 months
| Period | Value | Change |
|---|---|---|
| Oct 2026 | 3.88% | +0.13 pts |
| Sep 2026 | 3.75% | +0.12 pts |
| Aug 2026 | 3.63% | 0.00 pts |
| Jul 2026 | 3.63% | 0.00 pts |
| Jun 2026 | 3.63% | 0.00 pts |
| May 2026 | 3.63% | −0.01 pts |
| Apr 2026 | 3.64% | 0.00 pts |
| Mar 2026 | 3.64% | 0.00 pts |
| Feb 2026 | 3.64% | 0.00 pts |
| Jan 2026 | 3.64% | −0.08 pts |
| Dec 2025 | 3.72% | −0.16 pts |
| Nov 2025 | 3.88% | −0.21 pts |
Monthly values. Decade figures are averages of the monthly values in each decade. The complete history is available as a CSV file.
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Federal Funds Rate: questions and answers
Who sets the federal funds rate?
The Federal Open Market Committee, made up of the seven Fed governors and five of the twelve regional Fed presidents. It meets eight times a year and can also act between meetings in an emergency.
Why is the effective rate different from the target?
The Fed announces a range, for example 4.25%–4.50%. The effective rate is what banks actually pay each other and normally trades a few hundredths of a point above the bottom of that range.
Does the fed funds rate control mortgage rates?
Only partly. Adjustable-rate mortgages and home equity lines follow it closely, but 30-year fixed mortgage rates track the 10-year Treasury yield, which reflects expected future Fed policy, inflation and risk premiums.
Where does the data on this chart come from?
From the Board of Governors of the Federal Reserve System. ChartWidgets downloads the series (FEDFUNDS) from FRED, the Federal Reserve Bank of St. Louis database, and checks for new releases every day. The last update was on November 4, 2026.