Blog

A Little Bit About the Federal Reserve

October 20th, 2014

A Little Bit About the Federal Reserve

You’ve heard a lot of talk about the Federal Reserve in recent years, as the economy has struggled and lending institutions have been making headlines. You may be wondering what the Federal Reserve is all about and what they have to do with your mortgage rates. You can find the answers to many frequently asked questions about the Federal Reserve on their website, and we have some answers for you right here as well.What is the Federal Reserve?

The Federal Reserve is also known as the Central Bank of the United States. It is an independent entity within the Federal Government, run on funds allocated to it by Congress. There are 12 regional Federal Reserve Banks, all of which are not for profit organizations that make monetary policy decisions. The Federal Reserve is monitored and held in check by Congress. What are the Responsibilities of the Federal Reserve? The responsibilities for the Federal Reserve fall into four general areas:
  • Serving Banks: The 12 regional Federal Reserve Banks can be thought of as banker’s banks. The services that they provide to banks are similar to those provided by banks to individuals. This adds a layer of security and efficiency to banking on a national level.

  • Serving Government: The Federal Government works with the Federal Reserve similarly to how you work with your checking account at your local bank. Taxpayer revenue goes into the Federal Reserve and government payments go out. Government savings bonds, treasury bonds, etc. are also managed by the Federal Reserve.

  • Supervising Banks: Along with providing banking services to banks, the Federal Reserve is responsible for keeping banks in check in terms of fair and legal practices. Some of the regulatory acts enforced in part by the Federal Reserve that you might be familiar with include The Equal Credit Opportunity Act and the Truth in Savings Act.

  • Monetary Policy: By devising and implementing monetary policy, the Federal Reserve influences money and credit conditions within the economy. Their purpose for this type of policy is to stabilize the economy.

How Does the Federal Reserve Affect Mortgage Rates? Although policy implemented by the Federal Reserve does not directly affect mortgage rates, it indirectly has a great effect. The money that you borrow from the bank is in turn borrowed from higher lenders and the Federal Reserve orchestrates the rates for this higher level of lending. If it costs the bank more to borrow money, they will pass these additional expenses on to consumers when lending it. When the Federal Reserve buys up mortgage bonds, the demand for these products increases, and mortgage rates go down. When the Federal Reserve sells the bonds off, the demand goes down, and mortgage rates go up. The Federal Reserve also makes predictions about the future of the economy and a poor outlook will drive mortgage rates down.

Comments



Leave a Comment

Contact Us


Not readable? Change text.


Axiom Financial

Contact Us

Privacy Policy
Terms of Use
Site Map