What Is the Fed Rate?

What is the Federal Fed Rate?

The federal funds rate is the interest rate that banks charge each other to borrow money overnight.

In other words, a bank short on reserves borrows from another bank that has them, and the interest on that lending is the federal funds rate.

The Fed, via its policy-setting body, the Federal Open Market Committee (FOMC), sets a target range for that rate, say 4% to 4.25%. It uses open market operations, reserve requirements and other tools to keep the actual rate in line with that target.

By raising or lowering interest rates, the Fed can influence the cost of borrowing money, which then either curbs or boosts inflation. The Fed often publishes the effective federal funds rate (EFFR), which is the actual weighted outcome of overnight lending among banks.

Basis points and what they are

You’ll often see basis points (bps) being used. Essentially, 1 basis point is the equivalent of 0.01 percentage point, and 100 bps is the same as 1%.

So when the Fed says it raised rates by 25 bps, it means an increase of 0.25%.

How the Fed sets the rate

The FOMC meets around eight times a year to assess economic conditions and decide whether to adjust the federal funds rate. After discussion and a vote, the Committee will announce a target range for the federal funds rate, for example, 4.25% to 4.50%.

After each meeting, the Fed will also publish a statement explaining its reasoning and sometimes share a chart that shows where policymakers expect rates to head in the future.

The Fed then uses tools, such as open market operations and adjusting the interest on reserve balances, to influence reserve supply so that the actual overnight rate stays near the target.

Why does the Fed change interest rates?

The Fed changes interest rates mainly to either stimulate a sluggish economy or cool an overheated one.

When the economy is weak, the Fed may cut the federal funds rate to make borrowing cheaper for banks, which also means lower rates for businesses and consumers. More loans typically equals more spending and more support for growth and employment.

But when prices are rising too quickly and inflation is getting out of hand, the Fed does the opposite. It raises rates to increase borrowing costs and slow spending, which helps cool inflation and stabilize growth.

Each Fed rate decision takes into account a mix of factors like inflation, employment, global economic risks and GDP growth. And ultimately, these decisions always tie back to the Fed’s dual mandate of price stability and maximum employment. That’s why rate changes are never random. When the Fed raises, cuts or holds rates steady, it’s guiding the entire direction of the economy.

Fed rate changes for 2025

The effective federal funds rate has been around 4.33% in the first half of 2025 and has dropped to 4.22% as of September 2025.

The target range was roughly in the 4.25 % to 4.50 % range throughout most of 2025 until the Fed, on September 17, 2025, cut rates a quarter point to a range of 4% from 4.25% as it shifted focus from fighting inflation to supporting the choppy labor market. This was its first cut since December 2024.

How the fed rate impacts you

Even if you don’t follow Fed announcements, rate changes affect your money more than you think.

How it impacts savings accounts

Savings accounts have variable rates that can change alongside the Fed rate. When the Fed hikes rates, banks often raise what they pay on savings. And when it cuts them, those returns drop as well.

How it impacts certificates of deposit

Fixed-rate CDs don’t change when the Fed rate moves, but new CD offers often do. Higher rates generally mean better CD yields, and lower rates mean fewer high-paying options.

How it impacts lending and mortgage rates

Car loans, credit cards, mortgages and personal loans all tend to follow the Fed rate as well. When rates go up, borrowing gets more expensive. But when they fall, loans are typically cheaper.

How it impacts investors

Rate changes can impact investing, too.

Rate hikes can cool stock prices and lift bond yields, whereas a decrease in interest rates will prompt investors to move their money from the bond market to the equity market.

How do I check the fed rate?

If you want to keep tabs on what the Fed is doing, you can visit its official website for updates on FOMC decisions and the target range for the federal funds rate.

Data sources like the Federal Reserve Bank of St. Louis’s FRED site also show the effective federal funds rate and historical charts.

When you’re looking at the numbers, remember that the Fed doesn’t set one exact rate. It sets a target range, and the actual rate will usually fall somewhere in that window. If the Fed raises its target range, borrowing typically gets more expensive and savings rates may increase. If it cuts the range, borrowing tends to get cheaper, but savings yields often dip too.

Make sure to also read the FOMC meeting statements and minutes, since they’ll give you a better idea of the Fed’s future moves.

Bottom line

Though the federal funds rate target is set for banks, the effects filter down to your savings, loans and investments. By knowing how the Fed rate works, how it’s set and how it changes, you’re better equipped to make sense of what’s happening with your money.

If rates are trending high, your savings could be earning more, too. Here are some of the best savings accounts to help you take advantage of that.

Frequently asked questions

• What's a good inflation rate?

  The FOMC says that inflation of 2% over the longer run is most consistent with the Federal Reserve's mandate for maximum employment and price stability.

• Is it good when the Fed cuts rates?

  Usually, yes, since borrowing gets cheaper. However, cutting rates can also signal that the Fed expects the economy to slow down, so it's not always positive.

• Should I take out a loan when rates are high?

  You'll pay more interest when you take out a loan when rates are high, so only do so if it makes financial sense or you have no alternatives.
  Sources:

To make sure you get accurate and helpful information, this guide has been edited by Bethany Hickey as part of our fact-checking process.

Written by

Jamela Adam

Contributor

Jamela Adam is a personal finance writer with over three years of experience. Her work has been published in major publications, including Yahoo Finance, Forbes Advisor, U.S. News, Business Insider, GOBankingRates, CNN Underscored, and Chime. Jamela previously worked as a content marketing specialist and helped devise content strategies for major brands in the financial services space. She is also a Certified Financial Education Instructor (CFEI). See full bio