The
interest rate at which
fed funds are lent to a
bank. Fed funds refer to the amount of
money that a
commercial bank in the United States has in excess of its
reserve requirement that is
deposited at the
Federal Reserve Bank of their district. Federal funds are available for
lending to other banks on an overnight basis. The
FOMC sets a target for the federal funds rate, but the actual interest rates at which banks lend to one another are set by market forces. Generally speaking, however, when one speaks of the
Fed raising or lowering "interest rates," this refers to the federal funds rate.