Who is the Fed and Why Should You Care?

Do you listen to news about the economy? Ever heard of "The Fed"? Probably. So, what is the Fed is and how can it impact you? Learn how the central bank of the United States works and how it affects your finances.  You'll be better prepared for making long-term plans and financial decisions. Understanding the Fed gives you an idea of what the economy is currently like, what's going to happen, and how it affects you. (Your business, your job, your loans, and/or your investments.) Here are a few basic facts about the Fed: It is not a government agency. Private banks own the Fed. It operates independently of the U.S. government. But, the President does appoint its Board of Governors. The Fed has 3 mandates: maximize employment, stabilize prices and moderate long-term interest rates. It sets important interest rates. The main way the Fed impacts the economy is by setting the Federal Funds Interest Rate. Every other interest rate uses that as a basis. In general, when the Fed lowers interest rates, the goal is to stimulate the economy. They usually raise rates when they want to slow down the economy. The Fed manages these rates through the Federal Open Market Committee (FOMC).  FOMC meets 8 times each year. After each meeting, the FOMC issues a press release about the general U.S. economy and whether the Fed will raise interest rates. How does the Fed Funds rate impact consumers? It's true consumers do not  borrow money directly from the Fed. But, the financial institutions that provide their car loans and mortgages do. By raising rates, the Fed raises the cost of what your bank has to pay  to get money.  In turn, raising and lowering it affects the rates you, the consumer, can get from your bank. So, what do you do if you're in the market to buy a house and you hear that the Fed may be raising interest rates soon? Act fast to secure a lower interest rate for your mortgage. Are higher rates always bad for consumers?   No, it's not all bad. Yes, loans will become more expensive. But, you'll also earn more interest on your savings account and any interest-bearing investments! Keep these basic concepts in mind to create better a financial plan for yourself. If you want to learn more about the Fed, stop in and chat with us.