How central banks set interest rates: what the Fed, ECB and Bank of Japan decide

The Fed, the ECB and the Bank of Japan, all holding policy meetings in late October 2026, each decide through a different committee and target a different overnight rate. The Federal Open Market Committee of the US Federal Reserve meets on 27-28 October 2026, the Governing Council of the European Central Bank on 28-29 October and the Bank of Japan's Policy Board on 29-30 October. All three also use their own operations to bring market rates into line.

The FOMC has 12 voting members: the seven members of the Fed's Board of Governors, the New York Fed's president, and four of the 11 other Reserve Bank presidents, who rotate through one-year terms. Presidents without a vote that year still attend and join the discussion. The committee has eight regularly scheduled meetings a year, where it reviews economic and financial conditions and decides on the stance of policy (2026 calendar).

On 16 September 2026 the FOMC voted 12-0 to raise the federal funds target range by a quarter of a percentage point, to 3.75-4.00% (written as 3-3/4 to 4 percent in the statement). It said the increase would help bring inflation back to its 2 percent goal sooner. The Fed's table of past moves lists it as the only change in 2026 so far; the range had been 3.50-3.75% since 11 December 2025.

In an Implementation Note issued the same day, the Board of Governors raised the interest it pays on banks' reserve balances (IORB), and the FOMC instructed the Open Market Desk at the New York Fed to carry out open market operations as needed to hold the federal funds rate inside the new range. The Board also approved a quarter-point increase in the primary credit rate. All of it took effect on 17 September 2026.

The repo rate matches the top of the target range and the reverse repo offering rate its bottom. Standing repo operations help put a ceiling on rates, according to the Fed. Of the three monetary policy tools the Fed lists, the FOMC is responsible for open market operations, while the Board sets the discount rate and reserve requirements.

In the euro area, monetary policy is set by the ECB's Governing Council, made up of the six members of the ECB's Executive Board and the governors of the euro area's national central banks. It takes policy decisions every six weeks. Price stability is the ECB's primary objective, and the Governing Council aims for 2% inflation over the medium term. The ECB describes setting its policy rates as its main instrument. The national central banks usually carry out the decisions, for example by lending to commercial banks in refinancing operations.

The other two key rates sit above it. The main refinancing operations rate is what banks pay to borrow from the ECB in weekly operations against broad collateral; the marginal lending facility rate applies to overnight loans, also against collateral. Since 18 September 2024 the main refinancing rate has been 0.15 percentage point above the deposit facility rate, and the marginal lending rate 0.25 point above the main refinancing rate.

The ECB's own table shows the deposit facility rate at 2.50% with effect from 16 September 2026, with the main refinancing rate at 2.65% and the marginal lending rate at 2.90%. The deposit rate had stood at the same 2.50% from 12 March 2025, before cuts took it to 2.25% from 23 April 2025 and 2.00% from 11 June 2025. It was raised to 2.25% from 17 June 2026 and back to 2.50% from 16 September 2026.

The Bank of Japan Act directs the bank's monetary policy at price stability, as a way to support the sound development of Japan's economy. In January 2013 the bank set its price stability target at 2 percent, measured as the year-on-year change in the consumer price index. Decisions belong to the nine-member Policy Board (the Governor, two Deputy Governors and six other members), which holds Monetary Policy Meetings eight times a year, each over two days, and decides by majority vote (outline of monetary policy).

What the board decides is a guideline for money market operations covering the period until the next meeting. On 18 September 2026 it voted 7-2 that the bank will "encourage the uncollateralized overnight call rate to remain at around 1.25 percent" (statement), with effect from 24 September. By the same 7-2 margin it set the rate on the complementary deposit facility, paid on banks' current account balances at the Bank of Japan other than required reserves, at 1.25%, and the basic loan rate at 1.5%. The bank then decides how much money to supply or absorb in its daily market operations, and which instruments to use, to meet the guideline.

The Fed sets out a chain that runs from the federal funds rate to other short-term interest rates, exchange rates, long-term interest rates and the amount of money and credit, and from there to broader measures such as employment, output and the prices of goods and services. The ECB's version is shorter: its policy rates influence financing conditions and economic developments, and so help keep inflation at its target.