Federal funds are funds that are provided by the federal government to financial institutions, such as banks and credit unions. These funds can be borrowed from the Federal Reserve Bank through a process called open market operations. The interest rate on these loans is set by the Federal Open Market Committee (FOMC) of the Federal Reserve System.
Federal funds are used by financial institutions to meet their reserve requirements, which are mandated by the federal government in order to ensure the stability of the banking system. When a financial institution has excess reserves, it can lend them out to other banks overnight through the federal funds market. The interest rate on these loans is determined by supply and demand for funds, as well as the target federal funds rate set by the FOMC.
In summary, "federal funds" refers to short-term loans provided by the Federal Reserve Bank to financial institutions, which are used to meet their reserve requirements and can be borrowed or lent out through the federal funds market.