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When the rate-setting Federal Open Market Committee (FOMC)
Federal Open Market Committee (FOMC)
The FOMC consists of 12 members: the seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York; and four of the remaining 11 Reserve Bank presidents, who serve one-year terms on a rotating basis. The FOMC holds eight regularly scheduled meetings per year. At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth. changes the federal funds target rateFederal funds target rate
The short-term interest rate that banks charge other banks to borrow money overnight at the Federal Reserve. The actual rate, or effective rate, changes daily and may be above or below the targeted rate. The FOMC sets the rate at its regularly scheduled meetings but may opt to change it between meetings should economic conditions warrant a change., this in turn affects the Wall Street Journal prime ratePrime rate
The interest rate banks charge their best customers, meaning businesses. It is almost always 3 percent above the federal funds target rate. Banks set this rate based on loan demand and other factors., which is usually 3 percentage points higher than the former.
The prime rate affects the interest rates on most variable-rate credit cards. If the Fed cuts rates, the prime rate will drop accordingly the following day and variable-rate cardholders will enjoy a lower interest rate after their issuer reprices rates, which can mean a lag time of up to three months.
In this case, the Fed has cut rates by 50 basis points, or .5 percentage points. That puts the federal funds rate at 4.75 percent and the prime rate at 7.75 percent, down from 8.25 percent. That means that soon variable-rate cardholders will pay a slightly lower interest rate.
Fixed-rate cardholders may or may not feel a difference. While their rates should stay put, card companies can always adjust the rate with 15 days' advance written notice to the consumer.
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