It stands for effective federal funds rate; a method of calculating the federal funds rate (fed funds rate) that produces the volume-weighted median of daily traded rates of all overnight federal funds transactions over a specific time range. It is mainly a market driven rate, but controlled by the Fed to ensure its closeness to the fed funds target rate (FFTR). This rate represents the average interest rate that banks pay for overnight borrowing in the federal funds market.

Depositary institutions (such as banks) hold legal/ statutory and excess reserves (free reserves) on deposit at the Fed. In order to meet regulatory requirements (required reserve obligations), banks are allowed to borrow and lend their excess reserves.