The federal funds rate is the interest rate at which banks lend reserve balances to each other overnight. The Federal Open Market Committee (FOMC) sets a target range for this rate, which currently serves as the primary instrument of U.S. monetary policy.
The Fed raises the funds rate to tighten financial conditions and cool economic activity (fighting inflation), and lowers it to ease conditions and stimulate growth (fighting recession). These decisions ripple through the entire yield curve:
The FOMC meets eight times per year. Between meetings, the fed funds futures market prices the probability of rate changes, making it possible to extract the market's expected policy path.
The zero lower bound (ZLB) constrains how far the Fed can cut. The Fed held rates at 0 to 0.25% from December 2008 to December 2015, and again from March 2020 to March 2022. During both episodes the Fed turned to unconventional tools, including quantitative easing and forward guidance, to provide additional stimulus. The post-2022 tightening cycle brought rates to the highest level since 2007.
The FOMC votes on a target range expressed as a 25 bp band, for example 4.25 to 4.50%. The Fed's Open Market Desk at the New York Fed then conducts daily open market operations to keep the effective fed funds rate within that band.
Two tools do most of the work. Overnight repurchase agreements (repo) add reserves to the banking system, pushing rates down toward the floor. Overnight reverse repurchase agreements (reverse repo) drain reserves, pulling rates up toward the ceiling. The Fed also pays interest on reserve balances (IORB) directly to depository institutions. IORB acts as a hard floor: no bank will lend reserves in the fed funds market at a rate meaningfully below what the Fed itself pays.
The result is a tightly bounded effective rate. On most days the effective fed funds rate prints within 5 bps of the midpoint of the target range.
Rate transmission is not uniform. The 3 Mo and 6 Mo Treasury yields track the fed funds rate with near-perfect fidelity because they mature before the next several FOMC meetings and carry almost no policy uncertainty. The 2 Yr reflects the market's expectation of the average policy rate over the next two years, making it a clean real-time read on the terminal rate view.
The 10 Yr and 30 Yr are driven more by real growth expectations, inflation expectations, and term premium than by the current policy rate. This is why the curve shape changes so dramatically across tightening cycles.
The 2022 tightening cycle illustrates the pattern clearly. The Fed raised rates by 425 bps between March and December 2022. Over that same period, the 2 Yr yield rose approximately 430 bps, nearly dollar-for-dollar with policy. The 10 Yr yield rose approximately 240 bps. The gap produced a classic bear flattener, with the 2s10s spread collapsing from roughly +90 bps at the start of the year to deeply inverted territory by year-end.
The yield curve chart at /fed plots the historical fed funds rate alongside the full term structure, so you can see each tightening and easing cycle in context.
CME Group fed funds futures allow market participants to express and hedge views on policy. Each monthly contract settles to the average daily effective fed funds rate for the contract month. A February 2026 contract, for example, prices the expected average fed funds rate across all calendar days in February 2026.
Because each contract reflects a full month's average, reading the futures curve gives you the market's implied rate path with meeting-by-meeting resolution. If the February contract prices at 96.00, the implied rate is 4.00%. A shift from 96.00 to 96.25 implies a 25 bp cut is fully priced.
The /odds pages translate these futures prices into meeting-by-meeting probability distributions, showing the likelihood of a hike, hold, or cut at each upcoming FOMC meeting. Portfolio managers use this distribution to size duration bets, price interest rate derivatives, and assess relative value across the curve.
What is the current fed funds rate? The FOMC sets a target range, and the New York Fed publishes the effective rate each business day. The /fed page shows both the current target range and the historical rate series back to 1954.
Why does the Fed use a range instead of a single rate? The fed funds market is a private market. The Fed influences the rate through the tools described above but does not set it directly. A range acknowledges that the effective rate will fluctuate within bounds across the trading day and across banks.
How does the fed funds rate affect mortgage rates? Mortgage rates depend primarily on the 10 Yr Treasury yield plus a credit and liquidity spread. Because the 10 Yr responds to growth and inflation expectations rather than the policy rate alone, mortgage rates can move independently of the fed funds rate, particularly when the yield curve is steep or inverting.