What is the term for the interest rate on overnight loans between U.S. banks, set by the FOMC?

The interest rate on overnight loans between U.S. banks is the federal funds rate, whose target is set by the Federal Open Market Committee, or FOMC.

Banks and other eligible institutions lend reserve balances to one another, typically overnight. The resulting federal funds rate is a key short-term interest rate and an important channel through which the Federal Reserve influences borrowing conditions across the economy.

The FOMC does not usually dictate every individual transaction’s exact rate. Instead, it sets a target range for the federal funds rate and uses monetary-policy tools to steer market trading toward that range. Changes in the rate can influence other rates, including those for mortgages, business loans, credit cards, and savings products.

The federal funds rate is different from the discount rate, which applies to loans financial institutions obtain directly from a Federal Reserve Bank. It is also not LIBOR, a benchmark formerly based on unsecured bank borrowing estimates in several currencies and tenors, or the prime rate, which banks commonly quote to their best commercial borrowers.