Policy rate

The policy rate is the interest rate set by a central bank (the Fed in the United States, the ECB in the euro area) for its operations with commercial banks. Financial media also call it the “rent on money”: just as rent pays for the use of a home, this rate pays for the use of borrowed money. Raising it makes credit more expensive throughout the economy (real estate, businesses, credit cards) to curb inflation; lowering it makes it cheaper to support activity. In the United States, it is the FOMC that sets it, as a target range (3.75%–4.00% since September 16, 2026).