What Is the Federal Funds Rate?
When news reports say the Federal Reserve raised, cut, or held interest rates, they usually mean the target range for the federal funds rate. This rate helps guide borrowing costs across the U.S. economy, but it is not the rate printed on a savings account, mortgage, auto loan, or credit card statement.
As of July 24, 2026, the Federal Open Market Committee’s target range is 3.50% to 3.75%. The range influences short-term rates, but your bank’s APY or a lender’s APR may change by a different amount, at a different time, or not at all.
What the Federal Funds Rate Actually Measures
The federal funds rate is the interest rate banks charge one another for overnight loans of reserve balances held at the Federal Reserve. The Federal Open Market Committee, usually called the FOMC, does not set one exact market rate. It announces a target range and uses policy tools to keep the effective federal funds rate within that range.
The Fed mainly does this by changing the interest paid on reserve balances and the rate offered through its overnight reverse repurchase facility. These tools influence short-term lending decisions among banks and other financial institutions.
Why the Federal Reserve Sets Interest Rates
Congress has directed the Federal Reserve to promote maximum employment, stable prices, and moderate long-term interest rates. The first two goals are commonly called the Fed’s dual mandate.
The FOMC considers 2% inflation over the longer run, measured by the Personal Consumption Expenditures price index, to be consistent with price stability. It does not use one fixed unemployment target because the level of sustainable maximum employment changes with labor supply, productivity, demographics, and other economic conditions.
When inflation is too high, the Fed may raise its target range. Higher rates can slow borrowing and spending, which may reduce pressure on prices. When the economy and job market weaken, the Fed may lower the range to make credit less expensive and support demand. These effects are not immediate, and the Fed must weigh risks to both employment and inflation.
Who Decides the Target Range?
The FOMC has up to 12 voting members: the members of the Federal Reserve Board of Governors, the president of the Federal Reserve Bank of New York, and four presidents from the other 11 regional Reserve Banks who vote on a rotating basis. The other Reserve Bank presidents attend meetings and participate in the discussion.
The FOMC holds eight regularly scheduled meetings each year and may meet at other times when needed. Its next scheduled meeting after the June 16–17 decision is July 28–29, 2026. A policy statement is normally released at 2 p.m. Eastern Time on the second day.
How a Fed Rate Change Can Reach Your Finances
A change in the target range first affects overnight and other short-term market rates. It can then influence consumer credit, business loans, savings yields, spending, employment, and inflation. The path is indirect, so not every rate moves together.
| Fed decision | Possible borrowing effect | Possible savings effect | Important exception |
|---|---|---|---|
| Target range increases | Variable-rate debt and new short-term loans may become more expensive. | Savings account APYs and new CD yields may rise. | Existing fixed-rate loans and fixed-rate CDs usually keep their contracted rate. |
| Target range decreases | Some variable rates and new short-term loan rates may fall. | Savings account APYs and new CD yields may decline. | Long-term mortgage rates may move differently because they reflect market expectations and other economic factors. |
| Target range stays unchanged | Loan offers can still change as markets reassess inflation, growth, and credit risk. | Banks may still adjust deposit rates. | A Fed hold does not freeze every consumer interest rate. |
Short-term and variable rates often respond more directly to Fed policy. Longer-term loan rates, including fixed mortgage rates, also depend on expectations about future inflation, economic growth, and monetary policy. They may rise or fall before the Fed announces a decision.
For a savings account, compare the annual percentage yield, minimum balance, fees, and withdrawal rules. For a loan, check whether the rate is fixed or variable, when it can reset, and whether the quoted annual percentage rate includes fees. Your credit profile, loan term, collateral, and lender pricing also matter.
What to Check When You Read Fed News
- The decision: Did the FOMC raise, lower, or maintain the target range?
- The effective date: A new target range generally takes effect the day after the meeting ends.
- The reason: Look for the Committee’s comments on inflation, employment, economic growth, and financial risks.
- The outlook: Markets may react to the statement, press conference, and economic projections, not only to the current rate.
- Your contract: Check your actual APY, APR, reset date, fees, and fixed- or variable-rate terms before assuming your payment or earnings will change.
The Bottom Line
The federal funds rate is the Fed’s main policy rate for influencing financial conditions, employment, and inflation. It is a target for overnight bank lending, not a universal consumer rate. A Fed decision can affect savings and borrowing costs, but the timing and size of the change depend on the product, the market, and your contract.
Checked July 24, 2026. The latest completed FOMC decision was published June 17, 2026, and maintained a target range of 3.50% to 3.75%. Because the next meeting is scheduled for July 28–29, confirm the latest statement before relying on the range after that date.