How the Fed sets it
The Federal Open Market Committee meets eight times a year and sets a target range for the federal funds rate, the rate banks charge each other overnight. Under its dual mandate it aims for maximum employment and 2% inflation. When inflation runs hot, it hikes; when the economy weakens, it cuts. The Taylor rule is a well-known formula for where rates "should" be.
What it means for you
Fed hikes push up credit card APRs, adjustable-rate loans, and savings yields within weeks; 30-year mortgage rates follow longer-term Treasury yields. Higher rates cool spending and asset prices and usually strengthen the dollar. The spread between short and long rates shows up in the yield curve.
FAQ
- Does a Fed hike raise my mortgage rate?
- Not directly for fixed mortgages, which track the 10-year Treasury.
- What's a basis point?
- One hundredth of a percentage point; 25 bps = 0.25%.
Sources reviewed: 2026-10-26
References
- 한국은행. 통화정책 운영체계.
- Board of Governors of the Federal Reserve System. The Fed Explained: What the Central Bank Does (11th ed., 2021).
- Taylor, J. B. (1993). Discretion versus policy rules in practice. Carnegie-Rochester Conference Series on Public Policy, 39, 195–214.