What is the federal funds rate, in plain English
The federal funds rate is the interest rate banks charge each other for overnight loans of reserves. The Federal Open Market Committee sets a target range for it, currently 3.75%…
The federal funds rate is the interest rate banks charge each other for overnight loans of reserves. The Federal Open Market Committee sets a target range for it, currently 3.75% to 4% after the October 28 meeting.
Who sets it
The FOMC, a 12-voting-member committee within the Federal Reserve, meets eight times a year.
How it reaches your loans
It is a base rate for short-term borrowing. Banks tie their prime rate to it, and credit cards, HELOCs and some business loans follow. Mortgages follow long-term yields, which react to expectations for the funds rate rather than copying it.
Why it moves
The Fed raises it to cool inflation and lowers it to support employment. The highest level on record was 20.06% in January 1981, during the fight against 1970s inflation.
Common myths
- "The Fed sets mortgage rates." It does not.
- "A hike means the economy is weak." Often it means the opposite.
- "Rates return to zero." The long-run neutral rate is debated and likely above the 2010s.
Remember that the policy rate is a lever, not a forecast.
Educational content, not investment advice. Figures as reported on November 9, 2026; check primary sources before acting.
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