The Federal Reserve Is The Most Powerful Entity

The Federal Reserve is a very powerful entity, more powerful than the American President. The Fed can control a country’s interest rate, and money supply. Imagine what kind of power that entails. You have the ability to control the economy, and the rest of the world because America is globalized nearly into every country.

When the Fed lowers or increases interest rates a chain reaction is set in motion. You can usually see this with the stock market, you will an increase or decrease in the market. It’s an domino effect. If the fed increases interest rates, then banks increase their prime rate, which affects mortgage rates, car loans, business loans, and other consumer loans. However, banks can change their prime rate without the Fed but it rarely happens because they will usually wait for the Fed to make their move. 

Lower Interest rates are usually caused to make consumer, business, and investing borrowing easier which will incentives economic growth.

Higher interest rates is usually the result of a growing economy and it is intended to make borrowing harder in order to slow down economic growth.

Remember these four terms and you’ll know more about the Fed than 90% of Americans.

Federal Funds Rate: Interest rate controlled by the Fed which banks charge each other overnight

Discount Rate: Interest rate the Fed charges banks on their own funds.

Prime Rate: Interest rate the Fed gives their best customers, usually banks. When the Fed changes their interest rate, banks usually change their prime rate which effects mortgages, auto loans, and so forth. 

Inflation: The circulation of money is greater than the amount of the goods. The fed changes inflation to control the amount of inflation or money chasing goods.