How do interest rates work — How interest rates work: from the policy rate to the mortgage quote

An interest rate is the price of borrowing money, stated as a percent per year. In the United States, the base of that price is set by a committee rather than by a market crowd. The Federal Open Market Committee votes on a target range for one overnight rate. Lenders then price longer loans from that anchor and from their own expectations. The anchor is documented, not abstract. The Federal Reserve Board’s open market operations table lists every target-range change with its date. The latest entry lifts the range to 3.75 to 4.00 percent on September 17, 2026. A mortgage quote and a small-business loan both carry that base inside them. What rate does the Federal Reserve actually set One short-term rate: the federal funds rate. The Federal Reserve describes it as the rate at which depository institutions lend reserve balances to each other overnight, around a target that the Federal Open Market Committee establishes.

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