 TITLE: What Is the Prime Rate? CONTENT: How Is the Prime Rate Determined?\n---------------------------------\nThe Federal Reserve doesn't determine the prime rate directly. Instead, it is set by individual banks with influence from what's known as the federal funds target rate, which is the target for the interest rate banks charge each other for short-term loans. The target rate is established by a team of 12 Fed members referred to as the Federal Open Market Committee. The Federal Reserve can adjust its monetary policy to encourage interest rates to stay within this target range.\nBanks generally add 3% to the federal funds target rate when setting the prime rate for their customers. With the current federal funds target set at 0% to 0.25%, it follows that the current prime rate is 3.25%. END