Learn the stock market › The economy and the stock market › Lesson 2 of 6
What is the federal funds rate?
What the Fed is trying to do
By law the Federal Reserve conducts monetary policy to promote maximum employment, stable prices and moderate long-term interest rates. The first two are often called its dual mandate. The Fed's committee judges that inflation of 2 percent a year is most consistent with both.
Its main tool is the target for the federal funds rate. When inflation runs too hot, the committee raises the target: borrowing gets more expensive, spending and investment slow, and price rises ease. When the economy is weak and inflation low, it lowers the target to do the opposite. The effects take time to reach prices.
How the target has changed
| Took effect | Target range | Change |
|---|---|---|
| Sep 17, 2026 | 3.75–4.00% | +0.25 |
| Dec 11, 2025 | 3.50–3.75% | −0.25 |
| Oct 30, 2025 | 3.75–4.00% | −0.25 |
| Sep 18, 2025 | 4.00–4.25% | −0.25 |
| Dec 19, 2024 | 4.25–4.50% | −0.25 |
| Nov 8, 2024 | 4.50–4.75% | −0.25 |
| Sep 19, 2024 | 4.75–5.00% | −0.50 |
| Jul 27, 2023 | 5.25–5.50% | +0.25 |
| May 4, 2023 | 5.00–5.25% | +0.25 |
| Mar 23, 2023 | 4.75–5.00% | +0.25 |
| Feb 2, 2023 | 4.50–4.75% | +0.25 |
| Dec 15, 2022 | 4.25–4.50% | +0.50 |
The table shows the last twelve changes, dated the day each took effect. Since 2003 the target was highest at 5.25–5.50%, in July 2023, and lowest at 0.00–0.25%, first reached in December 2008.
What one point means
On a $300,000 loan with a variable rate, a rate one percentage point higher costs $3,000 more a year, about $250 a month. Banks' own rates do not follow the federal funds rate exactly, and a fixed-rate mortgage does not change at all until it is refinanced.
The rate and the stock market
Why stocks react to interest rates, and how the S&P 500 moved on the Fed's decision days, is in Interest rates and the stock market. What rates do to existing bonds is in What is a bond?, and what happened when rates rose fast in The 2022 rate shock.
Test yourself
Inflation is far above 2 percent. What does the Fed usually do with its target?
Sources
- Federal Reserve, Open Market Operations: the FOMC's target federal funds rate or range, read Nov 5, 2026.
- Federal Reserve, Monetary Policy: What Are Its Goals? How Does It Work?, read Nov 5, 2026.