The target federal funds rate is the Federal Reserve's stated goal for the range of the federal funds rate, the interest rate banks charge each other for overnight reserve balances.
At Federal Open Market Committee (FOMC) meetings, the Fed announces the target range for the federal funds rate. The central bank conducts open-market operations and other tools to influence the supply of reserves and steer actual market rates toward the target. Market participants watch policy statements and the projections to form expectations about future policy and short-term rates.
The target range serves as the central element of U.S. monetary policy. A higher target typically indicates a tighter stance intended to restrain inflation, while a lower target signals easier financial conditions to support growth. The actual federal funds rate tends to move toward the target over days to weeks, subject to liquidity, demand for reserves, and other market factors.
Example: After the meeting, the Fed announced a target federal funds rate range of 5.25% to 5.50%, signaling a shift toward higher rates.
Federal funds rate · Federal Reserve · Federal Open Market Committee (FOMC) · Open market operations · Monetary policy · Interest rate