Federal Funds Rate

The Federal Reserve (the Fed) is the central bank of the United States and it sets the federal funds rate, a benchmark interest rate that influences overall borrowing and lending rates throughout the economy. Decisions made by the Fed to raise, lower, or maintain this rate can have significant effects on inflation, which is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

Adjusting the federal funds rate is one of the primary tools the Fed uses to manage economic growth and control inflation. Lowering interest rates tends to stimulate economic growth by making borrowing cheaper, thus encouraging spending and investment. Conversely, raising interest rates can slow economic growth by making borrowing more expensive, which can help rein in inflation.