The Federal Reserve raises or lowers interest rates by changing its target range for the federal funds rate, an overnight rate banks charge one another for reserve balances. The Federal Open Market Committee (FOMC) decides the target; the Fed then uses administered rates and market operations to steer overnight rates toward it. Those changes influence, but do not directly set, the rates households and businesses pay or earn.
What rate does the Fed control?
The federal funds rate is the rate banks and other eligible institutions charge one another for overnight loans of reserve balances held at Federal Reserve Banks. The FOMC sets a target range for this rate as a tool of monetary policy. It is not a single rate applied to every financial product, and it is not the interest rate on a mortgage, credit card, or savings account.
| # | Preview | Product | Price | |
|---|---|---|---|---|
| 1 |
|
Principles of Economics | $270.79 | Buy on Amazon |
| 2 |
|
Basic Economics: A Common Sense Guide to the Economy | $25.49 | Buy on Amazon |
| 3 |
|
Economics For Dummies: Book + Chapter Quizzes Online | $17.49 | Buy on Amazon |
| 4 |
|
Principles of Economics | $177.99 | Buy on Amazon |
| 5 |
|
Understanding Economics, Student Edition (ECONOMICS PRINCIPLES & PRACTIC) | $46.61 | Buy on Amazon |
The FOMC chooses its policy stance in light of the economic outlook and the Fed’s goals of maximum employment and stable prices. A higher target range is generally called tightening; a lower range is easing. The Fed explains its policy objectives and implementation in its monetary policy overview.
Who decides, and how does the Fed put a decision into effect?
The FOMC sets the target range
The FOMC announces the target range after its policy meeting. The Federal Reserve Board and the New York Fed’s Open Market Desk then carry out the operational steps that help keep overnight market rates in line with the Committee’s decision.
#1 Best Overall
Administered rates steer overnight borrowing
A central tool is interest on reserve balances (IORB), the rate the Fed pays eligible institutions on reserve balances they hold at the Fed. By changing IORB in line with the FOMC’s decision, the Fed influences the rate at which those institutions are willing to lend reserves overnight. The Fed’s IORB frequently asked questions also explain the overnight reverse repurchase (ON RRP) facility. Available to a broader group of money-market participants, ON RRP helps limit downward pressure on money-market rates and supports the implementation framework.
Market operations manage reserves
The Open Market Desk conducts operations under the FOMC’s directive. A repo temporarily provides reserves against securities; a reverse repo temporarily absorbs reserves. Permanent securities operations change the Fed’s holdings, and directives may also address reinvestments or purchases intended to maintain ample reserves. These tools support control of overnight rates; the Fed does not simply adjust the quantity of reserves mechanically every day to set the federal funds rate. The Board’s open market operations overview describes these operations.
Rank #2
The discount rate for primary credit is a separate rate on a Fed lending facility. It is not the FOMC’s federal funds target range.
How do rate changes reach loans, savings, and the economy?
Market rates respond, but not uniformly
A higher target tends to push up short-term market rates and borrowing costs; a lower target tends to pull them down. The effects can reach variable-rate loans, business financing, deposit rates, longer-term yields, asset prices, and exchange rates. How much and how quickly a particular rate changes depends on market expectations, contract terms, lender pricing, risk, and other financial conditions.
The Tool Desk
Outbyte Driver Updater FREEScan for outdated or missing drivers - takes under a minuteDriver Scan →Outbyte PC Repair FREERepair Windows errors before they cause bigger problemsFix Now →Rank #3
Longer-term rates can move before a policy change if investors revise their expectations about the future path of interest rates. That is why a Fed announcement does not translate into an identical, simultaneous change in every mortgage quote, savings account, or credit-card rate. Federal Reserve Governor Adriana D. Kugler discussed these transmission channels in her April 22, 2025 speech on monetary-policy transmission.
Households and businesses adjust decisions
When financing becomes less expensive, some households may find financed purchases, home purchases, or refinancing more attractive, while businesses may be more willing to invest. Increased demand can support economic activity and employment, but it can also add upward pressure to prices. Tighter policy tends to work in the opposite direction by restraining borrowing and demand, which can reduce inflationary pressure. These effects take time and are not guaranteed: the economy is also influenced by factors beyond Fed policy.
Rank #4
Latest located Fed rate decision as of October 7, 2026
On September 16, 2026, the FOMC raised the federal funds target range by 0.25 percentage point to 3.75–4.00 percent. The Committee said economic activity was expanding at a solid pace and inflation remained elevated. In its implementation note, the Board set IORB at 3.90 percent and the primary credit rate at 4.00 percent, both effective September 17, 2026. These are dated U.S. policy settings, not rates that apply to consumer accounts; the Fed’s September 16 FOMC statement and implementation note record the decision and operating settings.
Quick Recap
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
Quick wins for a faster PC:
Scan for outdated or missing drivers - takes under a minuteDriver Scan →Repair Windows errors before they cause bigger problemsFix Now →Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →
