The federal funds rate in the United States refers to the interest rate in the American interbank lending market, and the most important one is the overnight lending rate. This interest rate change can sensitively reflect the surplus and shortage of inter-bank funds. By targeting and adjusting the interbank lending rate, the Federal Reserve can directly affect the capital cost of commercial banks and transfer the surplus and deficiency of funds in the interbank lending market to industrial and commercial enterprises, thus affecting consumption, investment and the national economy. Although the adjustment of the federal funds rate and rediscount rate was announced by the Federal Reserve, the methods are divided into administrative regulations and market functions, and the adjustment effects are also different, which may be an important reason why the federal funds rate gradually replaces the rediscount rate and plays a regulatory role.

The federal funds rate is an important benchmark in the financial market, and the interest rate is determined by the two banks through consultation. Members of the Federal Open Market Committee hold eight regular meetings every year (about once every seven weeks) to agree on the target interest rate of the federal funds. The Committee will also hold a special meeting to implement the changes in the target interest rate. The Federal Reserve will influence the money supply of the American economy through open market operations, so that the federal funds can effectively follow the target interest rate of the federal funds. The bank interest rate will keep the real GDP growth rate stable with the long-term money supply and the expected inflation rate.