The Fed Funds Rate Is 3.63%. The Prime Rate Is 6.75%. The Fed Does Not Set the Second One.
The August 21 H.15 release shows a 3.12-point gap between the policy rate and the rate that prices credit cards and small business loans. The Fed’s own answer is that banks set prime, not the Fed.
The short answer
- The Federal Reserve’s H.15 release dated August 21, 2026 puts the effective federal funds rate at 3.63% and the bank prime loan rate at 6.75% as of August 20 — a gap of 3.12 percentage points.
- The Fed states plainly that it has no direct role in setting the prime rate: individual banks determine it, though many base it partly on the FOMC’s target for the federal funds rate.
- The H.15 prime figure is not an average. It is the rate posted by a majority of the largest twenty-five banks.
- Treasury constant-maturity yields on August 20 ran from 3.87% at three months to 4.69% at ten years and 5.23% at thirty; the discount window primary credit rate was 3.75%.
Two numbers on the same one-page Federal Reserve release describe borrowing costs in very different parts of the economy. The effective federal funds rate, at 3.63%, is what banks charge each other overnight. The bank prime loan rate, at 6.75%, is the reference rate that sits underneath a great deal of credit card and small business lending. The Federal Reserve publishes both. It sets only one.
What the Fed says about prime
The Board’s own explanation is unusually direct. The prime rate is an interest rate determined by individual banks. The Federal Reserve has no direct role in setting it. Many banks base their prime rates partly on the target level of the federal funds rate established by the FOMC — the rate banks charge each other for short-term loans — but the decision is the bank’s.
The figure published in H.15 is a posted rate, not a transaction average. The Fed reports the prime rate posted by the majority of the largest twenty-five banks. If those banks post the same number, that number is the series. It moves in steps, when banks decide to move it, rather than drifting daily the way a market rate does.
The August 20 readings
- Federal funds, effective: 3.63%.
- Bank prime loan: 6.75%.
- Discount window, primary credit: 3.75%.
- Difference between prime and the effective funds rate: 3.12 percentage points.
That gap is the practical reason a change in the policy rate shows up on a credit card statement or a variable-rate business line almost immediately, while it takes far longer to show up in a mortgage rate. Prime is administratively tied to the policy rate; a thirty-year mortgage is priced off long-term markets that have their own opinions.
Where the rest of the curve sat
The same release gives Treasury constant-maturity yields for August 20.
- 1-month 3.80%, 3-month 3.87%, 6-month 3.94%, 1-year 3.99%.
- 2-year 4.19%, 3-year 4.26%, 5-year 4.39%, 7-year 4.53%.
- 10-year 4.69%, 20-year 5.20%, 30-year 5.23%.
Read against the 3.63% overnight rate, every maturity on that list yields more than cash does, and the increment keeps growing out to thirty years. That is a description of one day’s curve, not a forecast of the next one.
What to watch
Whether the posted prime rate moves at all before the next FOMC decision. Because it is administered rather than traded, prime tends to sit perfectly still and then jump, which makes the date of a move more informative than the level between moves.
Sources
- H.15 Selected Interest Rates (Daily) — August 21, 2026 — Federal Reserve Board
- What is the prime rate, and does the Federal Reserve set the prime rate? — Federal Reserve Board
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