Homeowners often become very interested in the Federal save Bank system. Every time the board of directors meets, mortgage interest rates are at risk.
Federal save Bank
The Federal save System acts as the central bank of the United States. produced in 1913, the Federal save sets monetary and financial policies for the financial industry and trades money with foreign countries. The Federal save 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 save.
The Federal save System is made up of 12 branch offices. The New York office is the dominant office with other branches located across the country.
The dominant job of the Federal save 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 rule to chaos. In the late 1970’s, for example, interest rates shot up into the high teens, causing a major economic slow down.
The Federal save effectively controls mortgage interest rates in a rare manner. Many people mistakenly believe interest rates are truly set by the Federal save. They clearly are not. Instead, the Federal save 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 keep up back a percentage of its monetary assets. Put another way, the bank is forced to continue a savings account. While this money cannot be loaned to consumers, it can be loaned to other edges. 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 save 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 functional one. edges without exception 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 save System makes a major effort to continue a low profile. Most people, however, feel it is the real strength behind the economy, not politicians.