What the Fed is—and why you should care

Eight times a year, policymakers from the Federal Reserve meet to make decisions that affect U.S. financial markets. In addition to regulating financial institutions and many routine banking tasks, it also influences interest rates.

Twelve regional banks spread across the country comprise the Federal Reserve system. It’s an independent central bank that affects every financial decision you make.

While the Fed doesn’t set the rate you’re offered for your mortgage or car loan, it determines the rate at which banks lend money to each other. That rate doesn’t directly correlate with rate movement on your fixed-rate mortgage, for example, but it does influence lending rates.

It’s not just mortgages, car loans, credit card rates, investments and yield from your savings accounts that the Fed affects. The central bank’s actions on rates and the supply of money affect the health of the economy. High interest rates might be great for your CD but could hurt employment numbers.

The central bank slashed interest rates in 2008 to stimulate the economy in the wake of a recession. That action was great news for people who wanted to borrow money, and interest rates for mortgages and other products remain at historic lows. That low-rate environment has also helped people with existing mortgages at higher rates cut their payments by refinancing—maybe more than once.

The Fed will raise rates eventually, but the nation’s central bank won’t move too fast. The Fed wants to promote stability and a strong economy, so you’ll have plenty of warning as rates start to inch up.

Any increase will likely cause some short-term volatility in the stock market. Of course, a higher rate will mean a better return on your savings, too.

If you’re applying for a mortgage, interest rates are an important consideration. Discuss with your lender what’s happening in financing markets so you can make a decision that benefits you.