Skip to main content

The FRED® Blog

Federal funds rate: target vs. reality


The traditional policy tool of the Fed is to target the federal funds rate. Note the term target. Indeed, the Fed does not set this interest rate; rather, it sets the target and then conducts open market operations so that the overnight interest rate on funds deposited by banks at the Fed reaches that target. Obviously, reaching the target is sometimes harder to do, especially in times when there’s a lot of uncertainty in the markets. The graph above compares the target (or target band more recently) with the effective federal funds rate. While the two coincide quite well over most of the 10-year period, there are important deviations that correspond to various financial market events. Nevertheless, these deviations are short-lived, which shows that the open market operations do have the desired effect.

How this graph was created: Search for “federal funds rate” and these four series should be among the top choices. Select the daily rates and use the “Add to graph” button to add them to the graph.

Suggested by Christian Zimmermann

View on FRED, series used in this post: DFEDTAR, DFEDTARL, DFEDTARU, DFF


Subscribe to the FRED newsletter


Follow us

Twitter logo Google Plus logo Facebook logo YouTube logo LinkedIn logo
Back to Top