Federal funds refer to the reserves deposited by American commercial banks in the Federal Reserve Bank (that is, the central banking system), including federal funds whose statutory reserves exceed the reserve requirements. These funds can be lent to other member banks to meet their demand for short-term reserves, and the loan interest rate is called the federal funds rate. This interest rate is one of the two benchmark interest rates in the United States, and the other benchmark interest rate is the discount rate.

Federal funds first began in the 1920s, when it was a tool for banks to adjust their reserve positions.

The federal fund market is a loose invisible market, which connects market participants through telephone network. The main participants in the market are commercial banks and other financial institutions. Federal fund brokers act as a needle in the market and provide services for market participants.

The interest rate of federal funds changes every day, depending on the situation in the money market. It is the most sensitive to financial markets. When there is any change in the central bank's policy, it will immediately affect the rise and fall of this interest rate, thus predicting the direction of the central bank's policy and reasonably reflecting the tightness of the money market.