Explainer

What is the fed funds rate?

It's the interest rate banks charge each other to borrow money overnight. The Federal Reserve doesn't set it directly. It sets a target range and steers the rate into it, then revisits that range at meetings through the year.

How a move works (example numbers, not today's rate): say the target range is 3.00% to 3.25% and the Fed raises it a quarter point. The new range is 3.25% to 3.50%. A cut works the same way in reverse.

Why should you care?

Most of what you borrow is priced off it, some of it fast and some of it slowly.

• Credit cards and home-equity lines: most are variable and tied to the prime rate, which banks move with the Fed's target. Expect a change within a statement or two. Example: a variable-rate card charging 20.00% would go to about 20.25% after that quarter-point hike, assuming the card's margin over prime stays the same.
• Savings accounts and CDs: they move the same direction, often more slowly when rates are rising.
• Car loans: new loans get priced off current rates. A loan you already have at a fixed rate doesn't change.
• Mortgages: these follow the 10-year Treasury yield more closely than the Fed's rate. The 10-year moves on what markets expect the Fed to do, so mortgage rates often shift before the Fed acts.

The one-line version

When the Fed moves, your credit card feels it first. Your mortgage already guessed.

Watch it in 40 seconds

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Go deeper

• Hike or Hold, our long-form on what a Fed decision means for your money
• Related: Headline vs core inflation · Real vs nominal pay

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Future Macro is education, not financial advice.