The Federal Reserve System is more than often mentioned in the news when it comes to the financial industry. Because of this, if you have ever thought about where mortgage rates come from or who is in charge of certain financial decisions, it is a good idea to have a better understanding of what exactly the Federal Reserve System really is. The next time you hear that rates have “fallen substantially” or that they “are expected to rise”, you will have a better idea as to where this information is coming from.
Just the basics
Often known as “the Fed”, the Federal Reserve System is the official central bank of the United States. The Congress created the Fed in 1913 in response to the nation’s financial crises. Due to this, it was designed to follow three monetary policies that include maximizing employment, stabilizing prices, and lessening long-term interest rates. To put it simply, the Fed was created to make sure the country’s economy is functioning effectively. The Fed has since then grown to have much control.
What exactly does the Fed do?
The Fed uses interest rates to influence the US economy by utilizing open market operations. This process is the buying and selling of Treasury bonds, and is overseen by The Federal Open Market Committee (FOMC). There are 12 members of the FOMC: The seven Board of Governors and five of the 12 Reserve Bank presidents. The Governors are appointed by the President, but when the Fed creates monetary policies, they do not have to be approved by the President or Congress.
Each year, eight FOMC policy meetings take place in Washington, D.C. According to the Federal Reserve website, “At these meetings, the Committee reviews economic and financial conditions, determines the appropriate stance of monetary policy, and assesses the risks to its long-run goals of price stability and sustainable economic growth.” When shopping for a mortgage rate, it’s smart to keep a close eye on these meetings. They have the ability to raise or lower rates dramatically.
With regards to this, see below for the next FOMC policy meeting dates: