The Federal Reserve’s policy committee meets October 27-28, six weeks after it raised interest rates by a quarter point in September. This article explains how the committee sets its target, what it is weighing, and how a change of a quarter of a percentage point travels into everyday borrowing and saving.
Where rates stand heading into the meeting
According to the Federal Reserve, the Federal Open Market Committee (FOMC) decided at its September 15-16 meeting to raise the target range for the federal funds rate by 1/4 percentage point, to 3-3/4 to 4 percent. The September 16 statement was approved 12-0. The new range took effect September 17.
The statement described the economy as expanding at a solid pace and said that “Job gains have kept pace with the workforce, and the unemployment rate has changed little.” On prices, it was blunt: “Inflation remains elevated.” It added that the policy action “will support a timelier return to the Committee’s 2 percent goal.”
The Fed’s calendar lists the October 27-28 meeting without a Summary of Economic Projections. Only the March, June, September and December meetings carry one, so this meeting will produce a decision and a statement but not a fresh set of committee forecasts.
What is the federal funds rate, and who sets it?
The federal funds rate is the interest rate banks charge one another for overnight loans of reserves. The Fed does not dictate a single number. It announces a target range, currently 3.75% to 4.00%, and uses its administered rates to keep market trading inside that band.
The FOMC has twelve members: the seven members of the Board of Governors, the president of the New York Reserve Bank, and four of the other eleven Reserve Bank presidents, who serve one-year rotating terms. The committee holds eight regularly scheduled meetings a year. Nonvoting Reserve Bank presidents also attend and join the discussion, according to the Fed.
How does the Fed keep the market rate inside its range?
When the committee changes the target, the Board of Governors and Reserve Banks adjust a set of administered rates. The September implementation note, effective September 17, lists three:
| Tool | Rate after September’s move |
|---|---|
| Interest rate on reserve balances (IORB) | 3.90% |
| Overnight reverse repurchase (ON RRP) offering rate | 3.75% |
| Discount rate (primary credit rate) | 4.00% |
The ON RRP rate sits at the bottom of the target range and the discount rate at the top, with the reserve-balance rate in between. Because banks can earn the reserve-balance rate by simply holding money at the Fed, they have little reason to lend to each other far below it. That is how a committee decision becomes a market price within a day. The September statement also noted the Committee “is continuing its policy of maintaining ample reserves in the banking system.”
What the committee is weighing: prices and jobs
The Fed describes its long-run goals as price stability and sustainable economic growth, and its September statement frames the inflation target as 2 percent. Two data points matter most going into this meeting.
According to the Bureau of Labor Statistics, the consumer price index for September 2026, released October 14, rose 3.7% over the 12 months before seasonal adjustment. Core CPI, which leaves out food and energy, rose 2.6% over the same period. The gap between the two figures suggests that food and energy are doing much of the work in the headline number. Our explainer on the September CPI report walks through that split in detail.
The second input is employment. The Fed’s own statement says the unemployment rate has changed little, which would give the committee less reason to lean on the economy and more latitude to focus on inflation, though the committee decides how to weigh these factors and has not signaled its October choice in the material reviewed here.
Does a quarter-point move really matter?
It can feel small, but it compounds across debts and deposits. The arithmetic below is illustrative, not a forecast.
- A 0.25 percentage point increase on a $10,000 balance with a rate that moves one-for-one with the Fed’s target adds $25 in interest over a year ($10,000 × 0.0025).
- On a $250,000 balance with the same sensitivity, the increase is $625 a year, or about $52 a month.
- On a $20,000 savings deposit that passes the full move along, the same quarter-point raises annual interest by $50.
Most products do not move one-for-one. Fixed-rate loans already signed do not change at all, while variable-rate products and new loans tend to respond sooner. Savings rates vary widely by institution, and some pass along increases slowly.
How rate changes ripple beyond loans
Interest-rate decisions shape more than borrowing costs. Higher policy rates tend to cool demand by making credit more expensive, which is the mechanism the Fed relies on when inflation runs above its goal. They also influence the value of the dollar, bond yields and stock-market sentiment, because investors recalculate what future cash flows are worth when the risk-free rate shifts.
One yardstick is the gap between the policy rate and inflation. The midpoint of the current range is 3.875%. Against September’s 3.7% headline CPI, that is a gap of roughly 0.2 percentage points; against 2.6% core inflation, it is about 1.3 points. These are rough comparisons, since policymakers care about expected inflation, not just past readings, but they show how close the policy rate sits to the current pace of price increases.
For borrowers already stretched by balances at high rates, the picture is clear in what a 22% credit card APR actually costs. And for households building a cushion before rates or prices shift again, a practical emergency fund remains the simplest buffer.
Why do forecasts and decisions sometimes diverge?
Central banks act on incomplete information. Data arrive late and are revised, and forecasts differ even among official institutions. A look at why World Bank and IMF growth forecasts differ shows how different assumptions produce different outlooks from the same data. The FOMC faces the same problem, which is why its statements stress that policy depends on incoming information and the balance of risks rather than a preset path.
What to read when the statement arrives
When the decision is published on October 28, a few items are worth separating:
- The target range: whether it stays at 3.75%-4.00% or moves, and by how much.
- The vote: September’s was unanimous at 12-0; dissents signal disagreement inside the committee.
- The inflation and jobs wording: changes from “Inflation remains elevated” or the description of job gains show how the committee reads the data.
- The implementation note: it lists the administered rates that actually move the market.
Because this meeting has no projections, the statement’s language and the Chair’s press remarks, if held, carry most of the information.
Conclusion: a small number with a long reach
The federal funds range of 3.75%-4.00% is the product of a twelve-member committee balancing inflation that remains elevated against a labor market that has changed little. Whatever happens on October 28, the mechanics are the same: a target range, a handful of administered rates, and a chain of loans, deposits and prices that adjust at different speeds. Knowing that chain makes headlines about a quarter-point move easier to interpret.
This article is general information and education, not financial advice. Rates and products vary, so consult a qualified professional about your own situation.
Sources: Federal Reserve; Bureau of Labor Statistics
