Will the Fed change interest rates on Wednesday?

What will the Fed decide on Wednesday?

The Federal Reserve announces its interest-rate decision on Wednesday, Oct. 28, at 2:00 p.m. ET. The chair then holds a press conference at 2:30 p.m. ET.

Why it matters: The decision sets the federal funds rate. That is the rate banks charge each other for overnight loans. The Fed sets a target range for it, which now runs from 3.75% to 4.00%.

The Fed can raise that range, cut it or leave it where it is. The outcome is not known until the announcement. Each choice would reach household money through different paths.

How does the Fed's rate reach savings accounts and loans?

Short-term rates respond most directly. Yields on money market funds, high-yield savings accounts and new short-term certificates of deposit (CDs) tend to follow Treasury bill rates. Those bill rates move with expectations for the Fed's benchmark.

A yield is the yearly interest a bond pays, measured against its price. The 3-month Treasury bill yields 4.22%. It often guides what cash accounts pay.

A cut could lower what savings accounts and money market funds pay over time. Banks may adjust savings rates gradually, so any change might not appear right away. A decision to leave the range unchanged could leave cash yields near current levels.

Borrowing costs follow a similar path. Most credit cards and home equity lines carry variable rates tied to the prime rate, a base rate banks set for lending. The prime rate moves when the Fed changes its benchmark. A cut could ease those costs, and an increase could raise them.

Why might mortgage rates not follow the Fed's move?

Mortgages work differently. Rates on 30-year fixed loans tend to track the 10-year Treasury yield more than the Fed's overnight rate. Trading in the bond market sets that yield, not the Fed.

The 10-year yield fell 9 basis points last week to 5.00%. It had stood at 5.15% at the start of the week. On Friday it rose 4 basis points. Since the start of the year, it has risen 82 basis points.

The average 30-year mortgage rate stands at 7.32%. A Fed cut may not lower that rate if long-term yields hold steady or climb. A lasting shift in the 10-year yield could matter more for new mortgage quotes.

Bond fund holders feel the same yields from another side. Bond prices move opposite to yields. When yields fall, the bonds a fund already holds gain value, and funds with longer-term bonds swing more.

Why could the chair's comments matter as much as the decision?

The chair's remarks at 2:30 p.m. ET may shape expectations for future meetings. Those expectations feed into bond yields and stock prices. Markets could react to the press conference as much as to the rate decision.

The 2-year Treasury yield tends to reflect where traders think the Fed's rate is heading. It rose 4 basis points on Friday to 4.69%.

Stocks enter the meeting after a mixed week. The S&P 500 fell 0.5% over the week. The Dow rose 0.4%, while the Nasdaq-100 fell 0.8%. News about rates reaches nearly every holding in a broad index fund, unlike news about a lone company.

What other economic reports come out around the meeting?

On Oct. 27, the Conference Board releases its October consumer confidence survey at 10:00 a.m. ET. September reports on durable goods orders and new home sales are also due that day.

On Oct. 29, at 8:30 a.m. ET, the government publishes its advance estimate of economic growth for the quarter that ended in September. The same morning brings September household income and spending data. That release includes the PCE price index, the inflation gauge the Fed watches.

The October jobs report follows on Nov. 6 at 8:30 a.m. ET. The October consumer price index, the main monthly inflation report, arrives on Nov. 10 at 8:30 a.m. ET. Those reports could shape expectations for the Fed's next decision after Wednesday.