What Is Federal Funds Rate?
The Federal Funds Rate is the interest rate at which US banks lend to each other overnight. Set by the Federal Reserve through the Federal Open Market Committee (FOMC), it is the most powerful monetary policy tool in the world. Changes in the Fed Funds Rate ripple through every financial market, including crypto.
How Federal Funds Rate Works
When the Fed raises rates, borrowing becomes more expensive, risk appetite contracts, and capital flows from speculative assets (like crypto) to safer yielding instruments (like Treasury bonds). When rates are cut, the opposite occurs: cheap money floods into risk assets. Bitcoin's two greatest bull runs (2017, 2021) coincided with easy monetary policy and low rates.
Why It Matters for Traders
FOMC meeting days (8 per year) are among the most impactful events for crypto markets. The market's reaction depends not on the absolute rate, but on whether the decision and language are more hawkish or dovish than expected. Even a rate hold can be bullish if the accompanying statement signals future cuts. Monitoring Fed Funds Futures provides real-time probability estimates of rate changes at each upcoming meeting.
