The interest rate the US Federal Reserve targets for overnight bank lending — the anchor rate for the entire global Dollar financial system, set eight times a year by the FOMC.
Source: FRED (Federal Reserve Economic Data), DFF, Federal Funds effective rate, monthly.
The Federal Funds Rate is the interest rate the US Federal Reserve targets for overnight lending between banks, set by the Federal Open Market Committee (FOMC) at eight scheduled meetings per year. It's the foundational policy rate that ripples through virtually every other Dollar-denominated interest rate globally.
Because the US Dollar remains the dominant currency for global trade invoicing, reserves, and cross-border lending, Fed policy shifts affect financial conditions far beyond US borders — a tightening cycle in Washington raises the cost of Dollar borrowing for governments and companies worldwide, Pakistan included.
The Fed Funds Rate and the US 10-Year Treasury yield are closely related but distinct: the Fed Funds Rate is the short-term policy rate the Fed directly controls, while the 10-year yield reflects market expectations for the average path of that rate (and inflation) over the coming decade.
A higher Fed Funds Rate tends to strengthen the Dollar and tighten global Dollar liquidity, both of which add pressure on emerging-market currencies like the Rupee and raise the cost of external borrowing for countries like Pakistan.
Fed rate decisions are one of the most closely watched inputs for SBP's own Monetary Policy Committee — a wide gap between Pakistan's policy rate and the Fed Funds Rate affects the relative attractiveness of holding Rupee-denominated assets versus Dollar assets, with implications for capital flows and currency stability.