What the Federal Reserve is

The Federal Reserve, usually just the Fed, is the central bank of the United States. Congress created it in 1913 and gave it a job that sounds simple and is anything but: keep prices stable and employment high. Those two aims, written into law, are known as the dual mandate, and almost everything the Fed does traces back to balancing them.

Who actually decides

Interest-rate decisions are made by the Federal Open Market Committee, the FOMC. It is made up of the seven members of the Fed's Board of Governors plus five of the twelve regional Reserve Bank presidents, who rotate, with the New York Fed president holding a permanent seat because that bank carries out the Fed's market operations. The committee meets about eight times a year. When you read that the Fed decided something, it was the FOMC voting; our coverage of the October 2026 meeting is one example.

The one rate it targets

The Fed does not set mortgage rates or savings rates directly. It sets a target for a single rate: the federal funds rate, which is what banks charge one another to borrow reserves overnight. As of 13 October 2026 that target sits at 3.75 percent to 4.00 percent. Everything else in the economy, from car loans to the return on your savings, is influenced by that rate, but indirectly.

How it steers the rate

The Fed has a few levers. The main one is open market operations: the Fed buys or sells US government securities, where buying adds money to the banking system and pushes rates down, and selling drains money and pushes them up. It also pays interest on the reserves banks hold at the Fed, which sets a floor under short-term rates, and it runs a discount window where banks can borrow directly in a pinch, a rate that also signals policy direction.

Why a quarter-point reaches your life

When the Fed raises its target, borrowing becomes more expensive across the economy, which tends to cool spending and, with it, inflation. When it cuts, borrowing gets cheaper and activity picks up. But the link is loose and slow. Short-term borrowing, such as credit cards and savings rates, moves fairly closely with the Fed. Long-term borrowing, above all the 30-year mortgage, tracks the bond market more than the Fed's target; see what a bond yield is. And the Fed's whole reason for moving is usually inflation.

Why markets hang on every word

Because the federal funds rate ripples through everything, investors try to guess the Fed's next move months ahead. A single meeting, or even a phrase in a speech, can move stock and bond prices sharply. The current level and the next decision date are tracked on our rates and returns page.

Independence and the dot plot

The Fed is designed to be independent of day-to-day politics, so it can take unpopular steps, such as raising rates, when it judges them necessary. Four times a year it also publishes a summary of where each official expects rates to go, known informally as the dot plot. Markets read it closely for clues about the path ahead, though the Fed stresses the dots are projections, not promises, and they shift as the economic data does.

The bottom line

The Fed is not a dial that sets your mortgage. It is the body that sets the tide, the price of money for banks, and lets that tide pull on every other rate over time. Understanding the dual mandate, the FOMC and the federal funds rate is enough to read most of what the Fed does and why it matters to your money.