What is the Impact of Federal CutOff Rate!

The Federal Reserve: The central bank of the United States which plays a major in determining US monetary policy. To explain why here is a very simple line that encapsulates how the Fed operates:

Key Objectives:

1. Maximum Employment

2. Price Stability (2% Inflation Target)

3. Tight Long-Term Interest Rates

Tools:

1. Federal Funds Rate (the interest rate at which banks lend to each other)

2. Open Market Operations (OMO) 16 Buying and selling of Government securities 26

3. Reserve Requirements (amount each bank must hold as a % of deposits)

4. Forward Guidance.

How it Works:

1. FOMC: Federal Open Market Committee, which meets eight times a year to discuss economic conditions.

2. FOMC: determines national monetary policy objectives and interest rates

3. Fed acts as buyer/seller in government securities: push/pull of liquidity into the system.

4. Federal funds rate: interest banks lend/borrow from one another.

5. Rate Changes: Interest rates may affect the cost of borrowing, spending and inflation.

Structure:

• Board of Governors of the Federal Reserve (U.S.)
• 12 Federal Reserve Banks.
• FOMC, the Federal Open Market Committee.appcompat #2 Similar to the CPI Consumer Price Index.

Independence:

The Fed is, of course, a government agency and must act in accordance with the law but was set up to operate independentlywithin the government. with a dual mandate from Congress:

1. There is no interference from governments in monetary policy decisions.

2. The Fed answers to Congress via regular appearance before testimony.

Well that was a simple break down and I hope this becomes your starting point for understanding what role the Federal Reserve plays and its functions.

Lowering US interest rates has good and bad sides for the person, depending of their level in the economy.

Pros: Borrowers stand to gain

You probably have debt or plan to one day, and because of that, lower interest rates are good for you. In other words, smaller monthly bills on mortgages, auto loans, credit cards and student loans. Mortgage rates, for example, have already fallen to an 18-month low of 6.2%. 

The Negatives: Affecting Savers And Investors

On the other hand, savers and investors may suffer because interest rates are falling. How that would affect anyone living off their bond interest during retirement.or that could mean changing their lifestyle[/paragraph] However, as investors stretch for yield in a lower interest rate environment certain pockets of the market can see risk being increased beyond normal.

Economic Impact

The cut, a move to boost the economy by lowering borrowing rates and increasing spending, was fully passed on to consumers. That in turn might mean more jobs and better wages for consumers. Conversely, rates that are too low can stimulate gobs of growth  inflation  which erodes the ability to buy cookies.

Key Takeaways

• Lower borrowing costs: Borrowers and maybe housing market.
• Low returns on investments: It affects savers and investors.
• Economic growth: Increasing in demand, employment and wages.

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