Educational purposes only. This content does not constitute investment advice. Read our disclaimer
StockCram is not a broker-dealer, investment adviser, or financial institution. All content is for educational and informational purposes only and should not be construed as personalized investment advice. Consult a qualified financial professional before making investment decisions. Past performance does not guarantee future results.Simple Definition
The Fed's benchmark short-term interest rate — the rate banks charge each other for overnight loans, which the FOMC sets as a target range. It's the lever almost every other U.S. interest rate keys off of.
Why It Matters
When people say "the Fed raised/cut rates," this is the rate they mean. It cascades into mortgage rates, credit-card APRs, savings-account yields, and the discount rate used to value stocks. Moving this one number is the Fed's primary way of speeding up or cooling down the whole economy.
Key Points
- Set as a target range (e.g., 3.50%–3.75%), not a single number.
- Drives borrowing costs across the economy and the "risk-free" rate markets price off.
- Higher fund rate = costlier borrowing + tougher competition for stocks from cash/bonds.
Learn More
How the Fed Sets Interest Rates
Get a complete explanation with examples, key takeaways, and a quiz to test your knowledge.
Related Terms
Common Questions
The Fed's benchmark short-term interest rate — the rate banks charge each other for overnight loans, which the FOMC sets as a target range. It's the lever almost every other U.S. interest rate keys off of. When people say "the Fed raised/cut rates," this is the rate they mean. It cascades into mortgage rates, credit-card APRs, savings-account yields, and the discount rate used to value stocks.
When people say "the Fed raised/cut rates," this is the rate they mean. It cascades into mortgage rates, credit-card APRs, savings-account yields, and the discount rate used to value stocks. Moving this one number is the Fed's primary way of speeding up or cooling down the whole economy.
Set as a target range (e.g., 3.50%–3.75%), not a single number.
Drives borrowing costs across the economy and the "risk-free" rate markets price off.
Higher fund rate = costlier borrowing + tougher competition for stocks from cash/bonds.