Effective Fed Funds Rate

The Effective Federal Funds Rate (EFFR) is the interest rate at which banks and other depository institutions lend money to each other on an overnight basis. Charged by banks for overnight loans to meet their reserve requirements, the EFFR is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target. It is set by the Federal Open Market Committee, that affects employment, growth, and inflation. The Effective Federal Funds Rate is the most influential interest rate in the nation’s economy, acting as an extremely important benchmark to set other rates.