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Learning More About How The Federal Reserve Affects Your Finances

by on May 2, 2012

Depending on what the members of the Federal Reserve Open Market Committee say when they meet, the interest rates that you pay on your financial instruments could be holding low and steady for some time to come. Members of the Fed set the federal funds rate, and interest rates on a number of products depend on that rate. Your mortgage rate is set there, so is the rate on your auto loan and even your credit card. What’s more, though, is that not only are the rates set at those meetings, but the federal funds rate can also actually affect your chances of getting a loan.

Wondering how the Fed has that much power? They don’t actually control the consumer rates. Instead, they set the rate at which banks borrow money from each other. The theory says that when banks can borrow money at a low rate, they have more to lend, which means consumers don’t have to pay much to borrow.

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