Federal Funds Rate

Monthly values

Federal Funds Rate — the last 12 months

Every month's reading, with the band the heatmap gives it. The chart above shows the same series in full.

Month	Value	Band
Aug 2026	3.63%	Within normal range
Jul 2026	3.63%	Within normal range
Jun 2026	3.63%	Within normal range
May 2026	3.63%	Within normal range
Apr 2026	3.64%	Within normal range
Mar 2026	3.64%	Within normal range

Month-end readings of the same series the chart shows, from fed_funds. Values are the current record, not point-in-time: a month that has since been revised shows its revised value.

What is the Fed Funds Rate?

The Federal Funds Rate is the interest rate at which banks lend money to each other overnight — set by the Federal Reserve as its primary monetary policy tool. It is the most important single interest rate in the world: it anchors all other US interest rates (mortgages, auto loans, credit cards, Treasury yields, corporate bonds) and directly influences the cost of capital for every business and consumer in the economy.

When the Fed raises rates (tightening), borrowing becomes more expensive, which slows economic activity and reduces inflation. When it cuts rates (easing), borrowing becomes cheaper, stimulating spending and investment. For investors, the Fed Funds Rate affects equity valuations through the discount rate mechanism — higher rates reduce the present value of future earnings, pressuring stock valuations, especially for high-growth companies. Lower rates do the opposite, supporting higher valuations.

How We Color-Code the Fed Funds Rate

Our heatmap colors each indicator based on historically significant thresholds:

0% – 1.5%

Very low rates — maximum monetary stimulus, strong equity support

1.5% – 2.5%

Low-moderate rates — accommodative policy, equity-friendly

2.5% – 4.0%

Neutral rates — neither stimulative nor restrictive

4.0% – 5.5%

Restrictive rates — monetary tightening, headwind for valuations

Above 5.5%

Very restrictive — significant pressure on economy and valuations

Historical Extremes — What Happened Next?

When this indicator reaches extreme levels, history shows consistent patterns:

2022-2023Fastest Hiking Cycle in 40 Years

Rate: 5.25% – 5.50%

The Fed raised rates from 0% to 5.5% in 16 months — the fastest tightening cycle since 1980. S&P 500 fell -25% in 2022 before recovering as markets priced in the eventual rate peak.

2020-2021Zero Rate Policy

Rate: 0% – 0.25%

Near-zero rates for 2 years supported one of the strongest bull markets in history — the S&P 500 doubled from March 2020 to January 2022.

2006-2007Pre-Crisis Peak

Rate: 5.25%

The Fed held rates at 5.25% through 2006-2007 while housing collapsed — eventually cutting aggressively during the financial crisis to near zero by 2009.

Investor Checklist — Current Reading

Based on the current Fed Funds Rate reading of 3.63% (Neutral):

ℹNeutral rates — balanced environment, maintain target asset allocation

✓Value stocks and financials tend to perform well in neutral rate environments

ℹMonitor CPI and GDP together — they determine the Fed's next move from neutral

Frequently Asked Questions

How does the Federal Funds Rate affect stock prices?

Higher rates reduce stock prices through two channels: first, they increase the discount rate used to value future earnings (making future profits worth less today); second, they make bonds more attractive relative to stocks, pulling money from equities to fixed income. The impact is strongest on high-growth, long-duration stocks whose value depends most on distant future earnings.

What is the "neutral" Federal Funds Rate?

The neutral rate is the theoretical rate that neither stimulates nor restricts the economy — often called the r* (r-star). Most Fed officials estimate the neutral rate at approximately 2.5-3.0% in normal conditions. Rates below neutral are stimulative; above neutral are restrictive. The neutral rate itself changes over time based on economic structure.

How quickly do rate changes affect the economy?

Rate changes affect financial markets immediately but affect the real economy with a lag of 12-18 months. This lag is why the Fed must act preemptively — when they raise rates to fight inflation, the full impact on the economy won't be felt for over a year. This delay makes monetary policy challenging and increases the risk of overtightening.

What is the difference between the Federal Funds Rate and mortgage rates?

The Fed Funds Rate directly controls overnight bank lending rates. Mortgage rates (typically 30-year fixed) are influenced more by 10-year Treasury yields, which move based on long-term inflation expectations and economic outlook — not just the Fed Funds Rate. This is why mortgage rates sometimes rise even after the Fed cuts rates, or fall before the Fed acts.

When does the Fed cut rates and what does that mean for investors?

The Fed cuts rates when economic growth is slowing or unemployment is rising — to stimulate the economy. Rate cuts are historically bullish for stocks over a 12-month period, but the first cut often coincides with economic uncertainty. The key is whether the cut is "insurance" (preemptive, economy still healthy) or "panic" (reactive to deterioration). Insurance cuts historically produce better equity returns.