The federal funds effective rate is the weighted average of rates on trades between brokers. As a simple example, if a borrowing bank A pays 5% to a lending bank B to borrow funds and on the same day a bank C pays 4.5% to a lending bank E to borrow funds, then the effective rate for this day is 4.75%, assuming we use a weight of 0.5 for both trades.
The federal funds decides a target rate (the historical data of the target rate can downloaded here: Federal Funds - target rate), then tries to keep the effective rate between a range of the target rate through open market operations. The open market operations involve buying and selling government securities to increase or reduce the money supply. As an example, to reduce the effective rate to be in a reasonable range of the target rate, the Open Market Committee will buy government securities. The money used to buy these securities will be injected in the market and this will increase the money supply. Increase in the money supply will in turn reduce the interest rate banks charge each other for loans and consequently the effective fed rate.
This item downloads historical data of the daily effective federal funds rate (Symbol: ^Federal_funds_rate) from the Federal Reserve website. The historical data spans from July 1954 to present.
