The federal funds rate
The federal funds rate is the overnight rate banks charge each other for reserves — the number the FOMC actually sets, announced as a target range. Every other rate in the economy keys off it: prime lending, credit cards, mortgages, and the short leg of the yield curve.
From policy rate to recession
Tightening cycles raise the front of the curve; if markets expect eventual cuts, the long end stays put and the curve inverts. The pattern behind most post-war recessions is the same script: inflation overheats → Fed hikes → curve inverts → credit and housing crack → recession → Fed cuts.
The level matters too
How restrictive the rate is depends on inflation — a 5% funds rate with 8% inflation is a different stance than 5% with 2%. Real (inflation-adjusted) rates, not nominal ones, do the damage. It's why the curve inverts *before* damage appears: the market prices the consequence while the level is still rising.