Fed Funds

Fed funds or federal funds are overnight borrowings made by commercial banks to maintain their reserves at the Federal Reserve. The reserves are held to meet banks' reserve requirements and to clear transactions. Banks whose reserves exceed reserve requirements are able to lend to other banks whose reserves are in deficit in the federal funds market. Such loans are made only from one day to another, i.e. overnight. The interest rate at which loans are made is the federal funds rate. This is one of two key U.S. short term official interest rates, the other being the discount rate. The Federal Reserve's Open Market Committee (FOMC) sets the target rate for fed funds.

See also: http://www.newyorkfed.org/markets/omo/dmm/fedfundsdata.cfm