The Federal Reserve raised its federal funds target range by a quarter percentage point on September 16, to 3.75 to 4 percent. The Federal Open Market Committee approved the decision by a 12 to 0 vote, according to its official statement.
The committee described economic activity as expanding at a solid pace and said inflation remained elevated. It presented the increase as support for returning inflation to its 2 percent goal. The statement did not specify how quickly prices would respond.
For a household reading the announcement, the target range is also easy to confuse with the rate on an ordinary bank product. The Fed changed a benchmark used in the banking system. A mortgage quote, a savings yield and a credit agreement each have their own terms.
The rate the Fed targets
The Federal Reserve's explanation of monetary policy defines the federal funds rate as the rate banks pay to borrow reserve balances overnight. Changes in that rate influence broader financial conditions, including the costs of short-term borrowing.
The September implementation note supplied the operational details. Interest paid on reserve balances rose to 3.90 percent, effective September 17. The primary credit rate rose to 4 percent on the same date. Those settings help explain how the announced policy is carried into the banking system.
A quarter point is not every borrower's adjustment
The Federal Reserve's consumer help page explains that its overnight target does not directly set an individual's home-mortgage rate. A headline about the Fed should therefore be read alongside the actual agreement or offer being discussed.
For example, a contract can specify a reference rate and a separate margin, as well as a date on which an adjustment occurs. Reading those provisions gives a borrower information that a national policy headline cannot supply. Deposit-account yields likewise depend on the advertised account's own conditions.
The sequence was September 16 for the decision and September 17 for the reserve and primary-credit settings to take effect. For a consumer product, find its own reference rate, margin and adjustment date in the written terms before assuming it follows that same timetable.
