What Is “the Fed,” and Why Should You Care? | Journey Home Lending
If you’ve spent any time reading or listening to the news, you’ve likely heard mention of “the Fed,” a somewhat ominous and very mysterious organization that seems to have tremendous power. But what exactly is the Fed and what does it have to do with the price of tea?
In actuality, the Fed, short for Federal Reserve, has a lot to do with the cost of just about everything, including how much you have to pay for a home. Right now, that’s good news because mortgage rates are at all-time lows and continue to inch downward.
The numbers are currently below 3%, levels people never imagined possible just a decade or two ago.
What Does the Fed Do?
First, let’s cover that another name for the Federal Reserve is the central bank of the United States, an institution that traces its roots back to 1790, when the newly independent union had to figure out how to repay its war debts.
The Federal Reserve as it exists today was officially created in 1913 by an act of Congress signed into law by President Woodrow Wilson.
To boil it down to the basics, the Fed manages the supply of money and sets monetary policy for the United States. It is motivated by goals of keeping the economy strong and achieving full employment across the country.
One of the tools available to the Fed is essentially setting the cost of debt like mortgages. In times when the economy is struggling, the Fed can give it a jolt by making it cheaper to borrow money by setting rates lower. That encourages people and businesses to borrow more money that is then invested in the economy.
That’s the Fed in a nutshell, but obviously the decisions that guide national and international monetary policy are much more complex. If you want to know more about how it could affect you, Journey Home Lending has the experience and expertise to help.