What is it?
The effective funds rate is the monthly average of the daily federal funds rate set by the Federal Reserve. It is expressed as a percentage and represents the interest rate that commercial banks lend reserves to other commercial banks overnight.
Who is interested?
Economists, consumers, business leaders considering borrowing to invest
What does it tell me?
The Federal Reserve sets a target range for the federal funds rate which it controls through monetary policy. Consumers and nonfinancial businesses do not borrow money at the federal funds rate, but the federal funds rate influences other short term interest rates such as credit card rates. Higher federal funds rates mean tighter monetary policy, which makes it more expensive for consumers and businesses to borrow money.