What Is the Fed Interest Rate and How Does It Affect Markets?
Traders around the world follow decisions by the US Federal Reserve. Here's what this rate is, why it changes and why the prices of almost all assets depend on it.
What it is
The Fed is the central bank of the United States. Several times a year, its Federal Open Market Committee (FOMC) sets the target range for the federal funds rate — the rate at which banks lend to each other overnight. Rates on loans and deposits are based on it.
The Fed has two goals: stable prices (an inflation target of about 2% a year) and maximum employment.
How it affects markets
| Rate is raised | Rate is cut | |
|---|---|---|
| Loans | More expensive | Cheaper |
| Bonds | New ones pay more, old ones get cheaper | Old ones get more expensive |
| Stocks and crypto | Usually under pressure | Usually supported |
| US dollar | Often strengthens | Often weakens |
These are general relationships, not rules: the market often prices in the expected decision ahead of time. More on the link with prices in the article on inflation.
How macroeconomics affects companies is covered in the fundamental analysis lesson.
Aspiro Invest — a medium-term portfolio: what to hold, when to review it and where the protective levels are.
- The Fed rate is set by the FOMC several times a year.
- A high rate cools the economy and inflation.
- The market reacts to expectations, not just the decision.
Frequently asked questions
Why does the Fed rate matter for Russia and Kazakhstan?
It affects the US dollar exchange rate and the flow of money between countries. A strong dollar often puts pressure on emerging-market currencies and markets.
Can I trade on a Fed decision?
When the news comes out, the spread widens and the price jumps around. Beginners are better off not opening trades right at the announcement.
Where can I find the meeting date?
The FOMC meeting schedule is published on the Fed's website a year in advance.
Free Aspiro Academy
26 lessons on investing and trading from scratch: videos, practice in the Aspiro apps, quizzes and a certificate. Lesson texts are open without sign-up.