What the Fed Funds Rate Is and How It Is Set
The fed funds rate is the interest rate banks charge each other for overnight loans of reserve balances. The FOMC sets a target range rather than a single number, and it meets eight times a year to vote on changes.
The effective rate is the volume-weighted average of those overnight trades, and it was 3.88% on October 19, 2026, inside the target range. Track the live series on the live fed funds rate page, which updates as the Fed moves.
- Target range: 3.75% to 4.00%, held at the October 28, 2026 meeting
- Effective rate: 3.88% on October 19, 2026
- Interest on reserve balances: 3.90%, effective October 29, 2026
- Primary credit (discount) rate: 4.00%, effective since September 17, 2026
Fed Funds Rate History: The Major Cycles Since 1980
The 1980 to 1982 Volcker tightening sets the historical high. The target range was 19% to 20% from December 5, 1980, and the effective rate averaged a record 19.10% in June 1981 per SoFi. Seeking Alpha cites 21.71% for the same peak, so name the measure before quoting a number.
Mortgage rates followed the same path: Freddie Mac's 30-year fixed weekly average peaked at 18.63% in the week of October 9, 1981. The series then declined through the 1980s and 1990s, and the lowest monthly average since 1954 was about 0.05% in April 2020, when the Fed cut to near zero during the pandemic.
The 2026 cycle is the first hiking cycle in more than three years. The FOMC raised the range by 0.25 percentage point on September 16, 2026, then held on October 28 by a 10-2 vote, with two members favoring another quarter-point hike.
- December 5, 1980: target range set at 19% to 20%
- June 1981: effective monthly average peaks at 19.10% (SoFi); 21.71% cited by Seeking Alpha
- October 9, 1981: 30-year mortgage weekly peak of 18.63% (Freddie Mac)
- April 2020: lowest monthly average effective rate since 1954, about 0.05%
- September 16, 2026: raised 0.25 point to 3.75%-4.00%
- October 28, 2026: held 10-2, two votes for a hike
- Long-run average effective rate since 1954: about 4.59%
How Past Rate Cycles Moved Stocks, Sector by Sector
The rate sources behind this history do not measure equity returns by cycle, so treat the sector framework below as a checklist for reading a chart, not a backtest. Banks earn the spread between deposit costs and loan yields, so the shape of the rate path matters as much as its level.
JPMorgan (JPM) traded at $343.58 with an AI investment score of 84 out of 100, a bullish sentiment reading, and a median price target of $375.00, about 9% above the price. Among investors Fintwit tracks on X, 0.4% bought JPM and 0.8% sold it over the last 30 days. Bank of America (BAC) traded at $51.14 with a score of 63, a bearish reading, a median target of $49.00 and a 30-day performance of -6.0%.
Schwab (SCHW) traded at $89.47 with a score of 82, a bullish reading, a median target of $104.00, and a 30-day move of -8.5%. Realty Income (O) traded at $57.20 with a score of 63, a bearish reading, a median target of $55.50, and a 30-day gain of 5.3%. Realty Income is a REIT, so its financing costs and dividend yield comparisons track long-term yields more than the overnight rate. Fintwit does not have the X investor-flow data for BAC, SCHW or O.
- JPM: $343.58, score 84, bullish, median target $375.00, 0.4% bought and 0.8% sold on X in 30 days
- BAC: $51.14, score 63, bearish, median target $49.00, 30-day -6.0%
- SCHW: $89.47, score 82, bullish, median target $104.00, 30-day -8.5%
- O: $57.20, score 63, bearish, median target $55.50, 30-day +5.3%
Why Cuts and Hikes Do Not Always Play Out the Same Way
The fed funds rate is a short-term rate, and fixed 15- and 30-year mortgage rates follow long-term Treasury yields more than the fed funds rate, per CNBC. Deposit rates tend to track the fed funds rate, but the Fed has no direct influence over them.
The starting level matters. A 25-basis-point move from 3.75% is a different event from the same move at 19%, and the Fed's 2026 hike has to be read against a rate that already sits below the 4.59% long-run average. Market reaction depends on how far the next move is priced in before the decision.
- Next FOMC decision: December 8 to 9, 2026, with updated economic projections
- Two dissenters at the October 28, 2026 meeting favored a hike, so the path is contested
- Fed Chair Warsh plans fewer rate-setting meetings in future years, which could change how often the target moves
How to Read the Fed Funds Rate History Chart on Fintwit
Read the effective rate against the target range before reading the trend. The 3.88% effective rate on October 19, 2026 sat 13 basis points above the 3.75% floor and 12 basis points below the 4.00% ceiling, so the trade was inside the range without pressure at either edge.
Mark the key dates on the chart before comparing it to any stock: December 5, 1980, June 1981, April 2020 and September 16, 2026. Then check the live fed funds rate chart for updates after each FOMC decision.
- Check which measure the chart plots: effective, target range or discount rate
- Mark the June 1981 peak at 19.10% and note the 21.71% alternative
- Mark the April 2020 low at about 0.05%
- Compare a stock's move against the rate change date, not the chart's slope
Frequently asked questions
- What is the difference between the fed funds rate and the discount rate? The fed funds rate is the overnight rate banks charge each other, set as a target range by the FOMC, while the discount rate is what the Fed charges banks that borrow at its discount window, currently 4.00%.
- What was the highest fed funds rate ever recorded? The effective rate peaked at about 19.10% as a June 1981 monthly average, though Seeking Alpha cites 21.71%, so confirm the measure before quoting a figure.
- How often does the Federal Reserve change the fed funds rate? The FOMC holds eight scheduled meetings a year and can change the target range at any of them, and it held at 3.75% to 4.00% on October 28, 2026.
- Does the fed funds rate directly set mortgage and savings account rates? No, fixed mortgages follow long-term Treasury yields, and the Fed has no direct control over deposit rates, which tend to track the fed funds rate.