Fed rate change
ripple calculator
When the Federal Reserve moves its rate by a quarter point, what actually happens? Pick a cut or a hike and follow it as it ripples out, through your loans, your savings, the money supply and the price of everything else.
Defaults are examples, not live quotes. Enter today's figures.
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How one rate move reaches the whole economy
The federal funds rate is the interest rate banks charge each other to borrow reserves overnight. On its own that sounds narrow, but because it's the cheapest, safest short-term rate in the system, every other rate is priced off it. Move it, and the change fans out through the entire economy. Economists call that fanning-out the transmission mechanism.
Cheaper to borrow, less to save, and the reverse
The first, fastest effect is on the price of money. Loans that float with the Fed, credit cards, variable mortgages, home-equity lines, most business credit, reprice within a billing cycle or two: lower after a cut, higher after a hike. The saver feels the mirror image: the yield on deposits and money-market funds moves by roughly the same amount, down on a cut and up on a hike. A cut is a quiet transfer from savers to borrowers and a hike moves it the other way, and the calculator shows both sides of it on your own balances.
Rate moves and the money supply
Here's the part people find surprising. Most money isn't printed, it's created by banks when they lend. You take a loan; the bank credits your account with a new deposit that didn't exist a moment earlier. Spend it, and it lands in someone else's account, where it can be lent again. In the classic model, the only brake on this is the reserve ratio: the fraction of deposits a bank must hold back. The ceiling on money creation is the money multiplier:
At a 10% reserve ratio, every $1 of reserves can support up to $10 of deposits. A rate move doesn't change the multiplier itself, it changes the appetite to use it: cheaper loans and idle reserves that earn little encourage lending, dearer loans and better-paid reserves discourage it.
than live gauge. The US reserve requirement has
been 0% since March 2020, and the Fed steers rates
mainly through the interest it pays on bank reserves,
in an "ample-reserves" regime, not through scarcity.
The mechanism above is the intuition, not the plumbing.
Why rate moves shift asset prices
An asset is worth the value of its future income, brought back to today's money by discounting at the going rate. Lower the rate, and those future dollars are discounted less harshly, so they're worth more now. For a stream of income that runs forever, the math is stark:
Cutting from 3.75% to 3.50% lifts the value of a perpetual income stream by about 7%; hiking from 3.75% to 4.00% trims it by about 6%. Real assets have shorter horizons and move less, but the direction is the same, and it's why stocks and property often jump when a cut looks likely and wobble when a hike does.
The catch: inflation
If cutting rates makes everyone better off, why not cut to zero and stay there? Because cheap money boosts demand, and demand that outruns supply becomes inflation. The Fed is balancing a dual mandate, stable prices and full employment, and the rate is the dial between them. It cuts to support growth and jobs when it can afford to, and holds or hikes when prices run hot. The compound interest calculator shows the flip side of all this: what rates do for money left to grow.
What actually reaches you
Pass-through is uneven. Variable debt and savings reprice fast; long-term fixed mortgages barely flinch at a single overnight-rate move, because they follow long bond yields instead. Treat the figures here as the clean, first-order picture of a cut or a hike, the mechanism laid bare, rather than a promise about your exact bill next month.
Reference points
- The target
- The Fed sets a range, not a single rate; the effective rate trades inside it. Since 16 September 2026 the range has been 3.75% to 4.00%.
- Recent peak
- 5.25 to 5.50 percent in 2023, the highest since 2001.
- Who decides
- The FOMC, eight meetings a year; Kevin Warsh chairs it in 2026. The next decisions are 28 October and 9 December.
- Your inputs
- Enter the current Fed rate and pick a cut or a hike; the ripples update as you type.
Fed rate FAQ
It is the interest rate banks charge each other to borrow reserves overnight. The Federal Reserve sets a target range for it and steers the market rate toward that range, which makes it the anchor for almost every other interest rate in the economy. Since the Fed raised rates on 16 September 2026 the target range has been 3.75% to 4.00%.
Borrowing gets cheaper across the economy. Variable loans, credit cards and business credit reprice lower, which tends to encourage spending and investment. Savings yields fall at the same time, and lower rates generally push up the value of assets like stocks and property.
Borrowing gets dearer across the economy. Variable loans, credit cards and business credit reprice higher, which tends to cool spending and investment. Savings yields rise at the same time, and higher rates generally pull down the value of assets like stocks and property.
Cheaper credit encourages more borrowing, and in a fractional-reserve system each new loan becomes a new deposit that can be lent again, expanding the broad money supply. The theoretical ceiling on that process is the money multiplier, equal to one divided by the reserve ratio.
An asset is worth the present value of its future cash flows, discounted at prevailing rates. When the discount rate falls, those future flows are worth more today, so prices rise. Long-duration assets react most, which is why a small cut can move markets noticeably.
Only if your rate tracks the Fed. Variable-rate loans, credit cards and HELOCs usually reprice quickly. Fixed-rate mortgages are tied to long-term bond yields rather than the overnight rate, so they may not move much, or at all, from a single cut or hike.
The money multiplier is one divided by the reserve ratio; at a 10% ratio it is ten. It is a useful teaching model, but a dated description of the modern US system: the reserve requirement has been 0% since March 2020, and the Fed now guides rates chiefly through the interest it pays on bank reserves in an ample-reserves regime, not through reserve scarcity.