Interest rates and the Fed, in plain words
What the federal funds rate is, how the Federal Reserve's decisions travel through the economy, and what real yields and breakeven inflation tell you.
The Federal Reserve, the US central bank, has two goals set by Congress: maximum employment and stable prices, which it defines as inflation of 2% a year. Its main tool is a single short-term interest rate.
The federal funds rate
The federal funds rate is the rate banks charge each other for overnight loans. The Fed's rate-setting committee, the FOMC, meets eight times a year and sets a target range for it, then steers the actual rate into that range. The effective rate is now 3.88% for October 16, 2026.
When the Fed raises the rate, borrowing becomes more expensive throughout the economy, which slows spending and hiring and, over time, cools inflation. When it cuts, it does the opposite. The effects take time: changes in rates are usually reckoned to take a year or more to have their full impact.
How it reaches everyone else
The Fed controls the shortest rate directly, but most borrowing happens at longer horizons. Mortgage rates, car loans and corporate bonds follow longer-term yields such as the 10-year Treasury yield, now 5.15% for October 19, 2026. Long-term yields reflect what investors expect the Fed to do over many years, plus extra compensation for the risk of lending for a long time. That is why long rates can rise even while the Fed is cutting, or fall while it is raising.
Real yields and breakeven inflation
The government also sells bonds protected against inflation, called TIPS. Their yield is a real yield: the return after inflation. The 10-year real yield is now 2.8% for October 19, 2026. A high real yield means money is genuinely expensive, which weighs on investment and asset prices.
The gap between an ordinary bond yield and a TIPS yield of the same maturity is the breakeven inflation rate, a market-based estimate of average inflation over that period. The 10-year breakeven is now 2.35% for October 19, 2026. The Fed watches it closely: if it drifts well above 2%, investors may be losing confidence that inflation will come back to target.
On this site
All of these are on the interest rates pillar. The regime map shows the Fed's stance month by month, and how to read the yield curve explains what it means when short rates rise above long ones.