How the federal funds rate works
The federal funds rate is the interest on overnight loans of reserve balances between banks. The Federal Open Market Committee sets a target range, not a single household price. As of September 16, 2026 that range is 3.75% to 4%.
You will not see “federal funds” on a mortgage closing disclosure or a card statement. You will see a mortgage rate the lender chose, or a card APR that is often “prime plus X.” Those numbers live downstream.
What the Fed actually moves on decision day
The statement names the target range. The implementation note names the tools that make the range stick:
- Interest on reserve balances (what the Fed pays banks for money parked at the Fed). Now 3.90%.
- The overnight reverse-repo offering rate (a floor for money-market cash).
- The overnight repo rate (a ceiling).
- The primary credit rate at the discount window. Now 4.0%.
Together those administered rates keep the funds rate inside the target. That plumbing is why a 25-basis-point decision shows up in bank funding costs the next day, even if your 30-year mortgage does not.
Why households still feel it
Short-term consumer rates — many cards, HELOCs, some auto and personal loans — are often indexed to prime. Prime is a published bank rate that typically sits a fixed spread above the funds rate. When the target range moves a quarter point, prime usually moves a quarter point, and the variable APR on the account follows on a schedule written in the cardholder agreement.
Long-term fixed mortgages are different. A 30-year loan is a 30-year promise. Lenders and the investors who buy mortgage-backed securities care about the 10-year Treasury and the extra spread they demand for prepayment risk. Those yields can rise for weeks on the expectation of a hike, then barely twitch on the day. That is why the Freddie Mac weekly average can look “already priced in.”
Basis points, in English
One basis point is 0.01 percentage point. Twenty-five basis points is 0.25 percentage point — a quarter of one percent. On $10,000 of debt for a year, 25 basis points is $25 of interest if the rate applies to the whole year and the balance never changes. Real loans amortize, cards revolve, and savings compound. Use the calculators for the actual shape.
Sources: FOMC statement, September 16, 2026; Fed implementation note, September 16, 2026.