A range rather than a rate, and the wording of the directive shows why. The Committee's implementation notes instruct the Desk to "undertake open market operations as necessary to maintain the federal funds rate in a target range" of a stated lower and upper bound, typically a quarter of a percentage point apart. Since the underlying rate is set by transactions between banks, the Committee works by making it unattractive to trade outside the band: it can pay interest on reserve balances held at the Federal Reserve, which sets a floor a bank will not lend below, and it operates standing repurchase and reverse repurchase facilities at stated rates that bound the range from above and below. The rate actually observed each day is published as an average of transactions, so it is a measured outcome rather than a published decision.
How it reaches an ordinary borrower, which is indirect in every case. The chain runs through the prime rate. Banks set that reference rate for their own lending, and they conventionally move it by the same amount and at the same time as the target range, so a change in the range shows up in prime almost immediately. Consumer products with a variable rate, most notably credit cards and home equity lines of credit, are written as the prime rate plus a stated margin. When the range moves by a quarter point, those rates move by a quarter point at the next scheduled repricing, which is why a card statement reflects a decision within a billing cycle or two while nothing about the cardholder's own credit has changed.
What it does not control, and this is the most common misunderstanding. A 30-year fixed mortgage rate is not priced off an overnight rate. It follows long-term bond yields, which reflect the market's expectations for inflation and for the path of short-term rates over decades. Those expectations often move before a decision, because the decision was anticipated, and they can move in the opposite direction on the day if the Committee's accompanying language changes what markets expect next. So a headline saying rates were cut is entirely compatible with mortgage rates rising that afternoon. Deposit rates are also not bound to it, and the reason is contractual rather than behavioral: a variable credit line is written as prime plus a margin, so it must reprice, while a savings rate is set at the bank's discretion and nothing obliges it to follow.
The schedule, and why the language matters as much as the number. The Committee holds eight regularly scheduled meetings a year. The decision is announced at the end of the meeting; minutes follow three weeks later, and at four of the eight meetings participants publish their individual projections of where they expect the rate to go. Because markets price the expected path rather than the current level, a decision that was fully anticipated typically moves little, while a change in the wording about future meetings can move a great deal.
Three names to keep apart, all of which appear in financial writing. The Federal Reserve's discount rate is the primary credit rate charged when a bank borrows from a Reserve Bank's discount window, approved by the Board of Governors under 12 USC 357 rather than set by the Committee; it is a bank borrowing rate and is not the federal funds rate. A discount rate in present-value arithmetic is something else again: the rate used to convert future dollars into today's value, which has nothing to do with the Federal Reserve at all. And the applicable federal rate is an IRS-published minimum interest rate used to test whether a loan between family members carries adequate interest; it is completely unrelated to monetary policy, and conflating the two is a live error when pricing an intra-family loan.
