What a Fed rate decision means for your money

The Federal Reserve’s rate-setting committee, the FOMC, meets eight times a year. On the second day of each meeting it releases a statement at 2:00 PM ET with its target range for the federal funds rate, the rate banks charge each other for overnight loans. The chair holds a press conference at 2:30.

Borrowing

Banks set their own prime rate, and for years most have kept it three percentage points above the top of the Fed’s range. Credit cards and home equity lines of credit usually charge prime plus a margin, so their rates change within a billing cycle or two of a Fed move.

Fixed-rate mortgages are different. Their rates follow the 10-year Treasury yield, which reflects where investors think rates and inflation are heading over many years. Mortgage rates can rise after a Fed cut, or fall before one, depending on how that outlook shifts. Car loans and fixed-rate personal loans are set when you take them out.

Saving

Money market funds pass changes through quickly because they hold very short-term securities. Banks set savings account rates at their own discretion and often move more slowly than the Fed. A CD rate is locked for its term, so a Fed move only affects new CDs.

More than the rate

The statement’s wording about the economy and future moves can matter as much as the decision. At four meetings a year, in March, June, September and December, the Fed also publishes officials’ projections for growth, unemployment, inflation and the rate itself, including the dot plot of where each official expects the rate to be. Minutes of each meeting come out three weeks later.