federal reserve

How the federal funds rate affects finance

The Fed giveth, and the Fed taketh away
The Fed giveth, and the Fed taketh away

The Federal Reserve can help or hurt your finances in a matter of minutes, depending on what it says and does.

Interest rates on credit cards, mortgages and auto loans are at stake each time Fed members meet to set the key federal funds rate. Even your chances of getting a loan at all can be affected by what happens at Federal Open Market Committee meetings.

The Fed doesn't control consumer rates directly, but it sets the federal funds rate, which is what banks pay to borrow money from one another. In theory, when the federal funds rate is low, banks have more money available to lend, and consumers can borrow at lower costs.

The Fed has kept the federal funds rate near zero percent since the financial crisis in 2008, but it can't keep it at the bottom forever.

The Fed may influence your finances even when the federal funds rate is left unchanged. That's because investors pay close attention to what Fed members say, including their perspective on the economy and plans for new monetary policy. Here is a closer look at how much power the Fed has over your financial life.


 

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