The interest rate that banks charge each other for overnight loans of reserve balances. Although banks set this rate between themselves, the Federal Reserve influences it strongly through its policies. Changes in the federal funds rate affect many other interest rates in the economy, including rates on mortgages, savings accounts, and bonds.
The Federal Reserve announces it will raise the federal funds rate to 5.5%. Banks then charge each other around 5.5% for overnight loans. Soon after, mortgage rates, credit card rates, and other interest rates in the economy start to rise as well because lenders pass along their higher borrowing costs.
Greater Fool is a free Chrome extension that explains terms like this in place. Highlight a word on any page, click Explain, keep reading.
Add to Chrome (free)