Federal Reserve Bank Controlling Mortgage Interest Rates

Federal Reserve Bank Controlling Mortgage Interest Rates



Federal Reserve Bank – Controlling Mortgage Interest Rates
Homeowners often become very interested in​ the​ Federal Reserve Bank system .​
Every time the​ board of​ directors meets,​ mortgage interest rates are at​ risk.
Federal Reserve Bank
The Federal Reserve System acts as​ the​ central bank of​ the​ United States .​
Created in​ 1913,​ the​ Federal Reserve sets monetary and financial policies for the​ financial industry and trades currency with foreign countries .​
The Federal Reserve also acts as​ the​ bank for the​ federal government .​
When you​ send a​ check in​ with your tax return,​ it​ ends up in​ the​ Federal Reserve .​
The Federal Reserve System is​ made up of​ 12 branch offices .​
The New York office is​ the​ primary office with other branches located across the​ country .​
The primary job of​ the​ Federal Reserve is​ to​ manipulate fiscal policy .​
The goal is​ to​ fine-tune the​ economy to​ create a​ stable,​ predictable situation in​ which businesses can function .​
Wildly fluctuating economic keys,​ such as​ interest rates,​ can lead to​ chaos .​
In the​ late 1970’s,​ for instance,​ interest rates shot up into the​ high teens,​ causing a​ major economic slow down .​
The Federal Reserve effectively controls mortgage interest rates in​ a​ unique manner .​
Many people mistakenly believe interest rates are actually set by the​ Federal Reserve .​
They clearly are not .​
Instead,​ the​ Federal Reserve directly dictates the​ rates at​ which one bank can loan money to​ another .​
Let’s take a​ closer look .​
Every bank in​ the​ United States must hold back a​ percentage of​ its monetary assets .​
Put another way,​ the​ bank is​ forced to​ maintain a​ savings account .​
While this money cannot be loaned to​ consumers,​ it​ can be loaned to​ other banks .​
In exchange for the​ loan,​ a​ bank agrees to​ pay back the​ loan at​ an​ interest rate known as​ the​ federal funds rate .​
The Federal Reserve determines the​ federal funds rate .​
When you​ here Alan Greenspan has increase the​ rate a​ quarter point,​ this is​ what they are talking about .​
You are probably wondering how the​ federal funds rate could possible impact mortgage rates .​
While there is​ no direct link,​ there is​ a​ practical one .​
Banks universally react to​ the​ federal funds rate,​ particularly whether it​ was raised or​ lowered .​
If the​ federal funds rate is​ raised a​ quarter point,​ you​ can expect mortgage rates to​ move up a​ bit .​
The bond market also impacts mortgage rates,​ which is​ why you​ will not see the​ exact same movement as​ occurs with the​ federal funds rate .​
The Federal Reserve System makes a​ major effort to​ maintain a​ low profile .​
Most people,​ however,​ feel it​ is​ the​ real power behind the​ economy,​ not politicians.




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