Federal Funds Rate - Historical Chart
Gray shaded areas indicate U.S. recessions.
Source: Federal Reserve FRED, Series FEDFUNDS. Shaded areas = NBER recession dates. Updated 2026-03-09.
The Rate That Sets All Other Rates
The federal funds rate is the interest rate banks charge each other for overnight loans of reserves held at the Federal Reserve. It sounds arcane. It is not. This single number determines the baseline cost of borrowing for every business, consumer, and government entity in the United States.
At 3.64%, the fed funds rate is well above the 10-year average of 2.25%. For businesses that borrowed at floating rates when fed funds was near zero (2020-2022), the increase has been devastating. A business that took on a $500,000 floating-rate loan at prime + 2% in 2021 was paying roughly 5.25%. That same loan today costs roughly 8.75% -- a 67% increase in interest expense, with no change in the underlying business.
That is what monetary policy does in practice. It is not an abstract concept debated by economists. It is a real number that shows up on your monthly loan statement.
How Fed Funds Flows Through the Economy
Fed funds rate changes flow through a predictable chain: Fed funds moves, prime rate follows immediately (prime = fed funds + 3%), bank loan rates adjust within 30 days, bond yields move in anticipation, and mortgage rates respond to the 10-year Treasury yield. Within 90 days of a Fed move, virtually every interest rate in the economy has adjusted.
What Current Rates Mean for Business Owners
At 3.64%, the fed funds rate creates a cost-of-capital floor that prices out many small business investments. A project that earned a 10% return was easily financed when the cost of capital was 5%. At an 8-9% cost of capital, that same project barely breaks even after debt service.
This explains the investment drought in small business. It is not that owners lack ideas or ambition. It is that the math does not work at current rates. The hurdle rate for profitable borrowing has risen by 3-4 percentage points, eliminating the viability of marginal projects.
The Path Forward
The Fed has signaled potential rate cuts, but the timing remains uncertain. Markets are pricing in 1-2 cuts in the next 12 months. Each 25-basis-point cut reduces prime by the same amount and eventually flows through to all floating-rate business obligations. For a business with $500,000 in floating-rate debt, each cut saves roughly $1,250 per year.
The historical peak was 19.1% in the early 1980s. The historical trough was 0.05% during the 2008-2015 zero-rate era. Current rates are high by recent standards but moderate by historical standards. The adjustment pain is real because businesses leveraged up during the zero-rate era.
Frequently Asked Questions
The effective federal funds rate is 3.64% as of Feb 2026. This is the rate banks charge each other for overnight loans and serves as the baseline for all other interest rates in the economy.
Most business loans are priced off prime rate, which is fed funds + 3% (6.64% currently). Your loan rate is typically prime + a spread (1-5%). When fed funds moves, your rate follows within 30 days.
Markets are pricing 1-2 cuts in the next 12 months. The Fed has signaled data-dependency. Each 25bp cut reduces prime by 25bp and saves approximately $2.50 per year per $1,000 of floating-rate debt.
The peak was 19.1% during Paul Volcker's inflation-fighting campaign in the early 1980s. Current rates are high by post-2008 standards but moderate by long-term historical standards.
The 10-year average is 2.25%. Current 3.64% is above the average by 1.39pp. Most of the last decade featured near-zero rates, making the current level feel historically extreme even though it is moderate by pre-2008 standards.
Federal Reserve FRED series FEDFUNDS. Published monthly by the Federal Reserve Bank of New York.