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Leah TenBieg

The Federal Reserve System: Just the basics

Monday, September 11, 2017 - Article by: Leah TenBieg - Prospect Home Finance - Message

When it comes to the financial industry, oftentimes you will hear about The Federal Reserve System. Mortgage rates are closely related when it comes to this system. Since rates are constantly fluctuating, it can be frustrating to not understand why. Read below to get a better understanding of how exactly The Federal Reserve System impacts rates.

What is "The Fed"?

Created in 1913 due to the nation's financial crisis, The Federal Reserve System is often referred to as the "Fed". Maximizing employment, stabilizing prices, and lessening long-term interest rates are the three monetary policies that the Fed was designed to follow. The main goal is for the Fed to make sure the economy is functioning effectively.

The Fed's duties

The Fed uses open market operations to influence the economy with interest rates. Open market operations is the process of buying and selling Treasury bonds. When the 10-year Treasury note yield falls, so do interest rates. The open market operations process is administered by the 21 members of the Federal Open Market Committee (FOMC). In the committee is the seven Board of Governors and five of the 12 Reserve Bank presidents. While the Governors are in fact appointed by the President, the monetary policies that the Fed creates do not have to be approved by the President or Congress.

There are eight FOMC policy meetings each year that are taken place in Washington, D.C. During each meeting, economic and financial conditions are looked over. The committee then decides if anything needs to be done to stabilize the economy even more.

The next FOMC policy meeting will take place on September 19-20. Read here to see the official Federal Reserve System website.

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