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The range the Federal Reserve seeks for the overnight rate on federal funds transactions between eligible institutions.
The Fed uses its operating framework, including interest paid on reserve balances and other facilities, to encourage overnight market rates to remain consistent with the target. The effective federal funds rate records actual market transactions and is distinct from the announced range. Expectations about future policy also affect longer-term yields, often before the committee makes its next decision.
If a hypothetical target moves from 4.00–4.25% to 3.75–4.00%, both endpoints fall by 0.25 percentage points, or 25 basis points. That is a policy easing of the target range. A borrower’s loan rate need not fall by exactly 25 basis points: its contract, credit risk, maturity and the lender’s funding costs also affect the price.