The Federal Reserve, often called "The Fed," is the U.S. government's central bank. It was established by the Federal Reserve Act of 1913.

A Longer Definition: Federal Reserve

The Federal Reserve is the independent central bank of the United States. It comprises 12 regional Federal Reserve Banks and a Board of Governors based in Washington, D.C.

The Fed maintains the stability of the U.S. financial system through three primary roles:

1. Monetary policy implementation
2. Financial system supervision
3. Payment system services

The Federal Reserve operates independently from Congress and the White House. It is known for three major economic interventions:

• Early-1930s: The Fed implemented policies to help end The Great Depression
• Early-1980s: The Fed raised interest rates to combat high inflation
• 2008-2012: The Fed lowered rates to prevent a financial collapse

The Fed also stabilized the economy during the COVID-19 crisis starting in 2020.

Federal Reserve Bank Locations

Federal Reserve Bank Locations: Boston, MA; New York, NY; Philadelphia, PA; Cleveland, OH; Richmond, VA; Atlanta, GA; Chicago, IL; St. Louis, MO; Minneapolis, MN; Kansas City, MO; Dallas, TX; San Francisco, CA

Source: Federal Reserve

What Is The Fed Funds Rate?

The Fed Funds Rate is the Federal Reserve's key tool for influencing economic growth.

This rate sets the interest for overnight loans between banks, typically to meet cash reserve requirements. It also serves as the basis for the Prime Rate, which is often used for home equity lines of credit and is generally 300 basis points higher than the Fed Funds Rate.

Raising or lowering the Fed Funds Rate affects the U.S. economy by either slowing it down or speeding it up.

When the Fed Funds Rate is low, banks have more funds to lend, encouraging consumer and business spending, job creation, and economic growth.

When the Fed Funds Rate is high, lending decreases, which slows down economic activity.

Given sufficient time, a low Fed Funds Rate can spur growth and inflation, while a high Fed Funds Rate can slow growth and result in recession.

The Federal Open Market Committee

The Federal Open Market Committee (FOMC) is a 12-member group within the Fed that makes decisions about the Fed Funds Rate and other policies like treasury bond purchases and mortgage-backed securities.

FOMC members include:

• The seven Board of Governors of the Federal Reserve System, including Chairman Jerome Powell
• The president of the Federal Reserve Bank of New York
• Four other Federal Reserve Bank presidents, serving 1-year terms on a rotating basis

The FOMC meets eight times per year in Washington, D.C.

The upcoming FOMC calendar is as follows:

2024 FOMC Calendar

• November 6-7, 2024
• December 17-18, 2024

2025 FOMC Calendar

• January 28-29, 2025
• January 28-29, 2025
• March 18-19, 2025
• May 6-7, 2025
• June 17-18, 2025
• July 29-30, 2025
• September 16-17, 2025
• October 28-29, 2025
• December 9-10, 2025

2026 FOMC Calendar

• January 27-28, 2026
• March 17-18, 2026
• April 28-29, 2026
• June 16-17, 2026
• July 28-29, 2026
• September 15-16, 2026
• October 27-28, 2026
• December 8-9, 2026

The FOMC also holds emergency meetings when needed, as it did during these key dates:

• October 8, 2008: Reduced the Fed Funds Rate by 50 basis points during the Banking Crisis
• March 3, 2020: Reduced the rate by 50 basis points during COVID
• March 15, 2020: Reduced the rate by 100 basis points during COVID

Since 2000, the Fed has made 70 changes to the Fed Funds Rate.

The September 2024 FOMC Meeting: A 50 Basis Point Reduction In The Fed Funds Rate

The FOMC's most recent meeting was held September 17-18, 2024. The committee voted to drop the Fed Funds Rate by 0.50 percentage points to a target range near 4.75 percent.

In his post-meeting statement, Fed Chairman Jerome Powell emphasized the Fed's commitment to stabilizing prices and mentioned that the rate would likely drop again in 2024.

The FOMC reiterated: "The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance."

The Fed highlighted strong job growth and low unemployment as positive drivers of the economy, and noted a slowdown in the sale of its government and mortgage-related securities.

The Fed Funds Rate and Mortgage Rates Don't Move Together

[homebuyer_fred_multi_data series_ids="EFFR, MORTGAGE30US" series_source="Federal Reserve, Freddie Mac" series_labels="Fed Funds Rate, 30-Year Conventional Fixed Rate Mortgage"]

Citations: Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, September 19, 2024; Federal Reserve Bank of New York, Effective Federal Funds Rate [EFFR], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/EFFR, September 19, 2024.

The Federal Reserve Doesn't Make Mortgage Rates

The Federal Reserve sets the Fed Funds Rate, not mortgage rates.

While the Fed doesn't directly control today's mortgage rates, it does influence them through its monetary policy, particularly by how it manages inflation, a key factor in mortgage rate movements.

Mortgage rates and the Fed Funds Rate don't always move in tandem.

However, both mortgage rates and Fed policies react to inflation.

If inflation is expected to rise, mortgage rates tend to rise, and when inflation is expected to fall, mortgage rates usually decrease as well.

Thus, when the Federal Reserve signals inflation is increasing, mortgage rates often rise. When it signals that inflation is falling, mortgage rates tend to drop.

In this way, what the Fed says about inflation can be more impactful on mortgage rates than its actual actions.

Common Questions About the Federal Reserve

When is the next Fed meeting?

The next Fed meeting is a 2-day event scheduled for November 6-7, 2024, adjourning at 2:00 PM ET.

Will the Fed raise interest rates at its next meeting?

The Fed is not expected to raise the Fed Funds Rate after its November 2024 meeting. The next move is expected to be a rate decrease.

Will the Fed lower interest rates at its next meeting?

The Fed may vote to lower the Fed Funds Rate after its November 2024 meeting, but it's unknown by how much and exactly when the next cut will occur.

What does the Federal Reserve do?

The Federal Reserve makes U.S. monetary policy, influencing growth, employment, and inflation rates.

How does the Federal Reserve affect the economy?

The Federal Reserve sets the Fed Funds Rate, impacting borrowing costs, consumer spending, and investment, which drive economic growth.

Where can I read the Federal Open Market Committee press releases?

The minutes of FOMC meetings are available three weeks after the meeting, offering insights into the Fed's outlook and policies. Its press releases are available immediately.

Does the Federal Reserve print money?

The U.S. Treasury prints physical currency, but the Federal Reserve controls the money supply, including bank reserves.

Does the Federal Reserve make mortgage rates?

The Federal Reserve does not set mortgage rates, but its policies influence their movement.

When will the Federal Reserve lower rates?

The Federal Reserve bases rate decisions on economic data, lowering rates when it determines that economic conditions justify it.

Who oversees the Federal Reserve?

The Federal Reserve is overseen by a Board of Governors consisting of seven members, appointed by the President and confirmed by the Senate.