What Is The Federal Reserve?

The Federal Reserve, often called “The Fed”, is the U.S. government’s central bank. The Federal Reserve was established by charter in the Federal Reserve Act of 1913.

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Mortgage Rates Win After Federal Reseve March 2024 Meeting

A Longer Definition: Federal Reserve

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

The Fed maintain the stability and security of the U.S. financial system, which it accomplishes through three primary roles:

1. Supervision and regulation of U.S. banks
2. Management of the nation’s money supply
3. Acting as lender of last resort during financial crises

The Federal Reserve operates without outside influence from Congress or the White House. It is remembered for three notable economic interventions:

• Early-1930s: The Fed made policy to help end The Great Depression
• Early-1980s: The Fed tempered runaway inflation by raising interest rates sharply and decisively
• 2008-2012: The Fed lowered interest rates to prevent a financial system collapse

The Federal Reserve also helped stabilize the economy during the COVID-19 crisis, beginning in February 2020.

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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 primary and most well-known tool for affecting economic growth.

The Fed Funds Rate is a prescribed interest rate for overnight loans between two banks, usually to fulfill overnight cash reserve requirements. It’s also the basis for Prime Rate, which is always 300 basis points above the Fed Funds Rate and is used for a home equity line of credit.

Raising and lowering the Fed Funds Rate expands and contracts the U.S. economy, respectively.

When the Fed Funds Rate is low, banks have more cash on hand for making business and consumer loans, which spurs spending, jobs, and economic growth.

When the Fed Funds Rate is high, the reverse is true. Banks make fewer loans in the community which, in turn, slows local growth.

Over long periods, a low Fed Funds Rate introduces inflationary pressures. A high Fed Funds Rate reduces them.

The Federal Open Market Committee

The Federal Open Market Committee (FOMC) is a rotating 12-person group within the Federal Reserve that votes on its policy decisions regarding the Fed Funds Rate, treasury bond and mortgage-backed securities investments, and more.

The FOMC members are:

• The seven Board of Governors of the Federal Reserve System, which includes Federal Reserve Chairman Jerome Powell
• The president of the Federal Reserve Bank of New York
• Four of the remaining eleven Federal Reserve Bank presidents, who serve 1-year terms on a rotating basis

The Federal Open Market Committee meets in the agency’s Washington, D.C. headquarters 8 times per year, for two days, roughly six weeks apart.

The remaining 2024 FOMC calendar is:

• April/May 30-1, 2024
• June 11-12, 2024
• July 30-31, 2024
• September 17-18, 2024
• November 6-7, 2024
• December 17-18, 2024
• January 28-29, 2025 (unconfirmed)

The Federal Open Market Committee also meets on an emergency basis as needed, as it did on the following dates:

• October 8, 2008 (Banking Crisis): Reduced the Fed Funds Rate by 50 basis points
• March 3, 2022 (COVID): Reduced the Fed Funds Rate by 50 basis points
• March 15, 2022 (COVID): Reduced the Fed Funds Rate by 100 basis points

The Federal Reserve has made 69 Fed Funds Rate changes since January 1, 2000.

The March 2024 FOMC Meeting: No Change To The Fed Funds Rate

The Federal Reserve’s FOMC held its most recent meeting on March 19-20, 2024. The group voted unanimously to leave the Fed Funds Rate unchanged near 5.25 percent.

In his post-meeting press statement, Fed Chairman Jerome Powell reaffirmed the Federal Reserve’s commitment to keep prices stable, and hinted that the Fed Funds Rate is unlikely to be lowered at the group next’s scheduled meeting in May 2024.

For the second straight meeting, the key FOMC statement read: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”

The Federal Reserve says strong job growth and low unemployment are pushing the economy forward, and the group will reduce its investment in government and mortgage-related securities. Future policies will change as economic data warrants.

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

Homebuyer.com uses the FRED® API but is not endorsed or certified by the Federal Reserve Bank of St. Louis.
Data: Federal Reserve, Freddie Mac. Do not reprint without permission.

The Federal Reserve Doesn’t Make Mortgage Rates

The Federal Reserve makes the Fed Funds Rate and it doesn’t make mortgage rates.

One could argue the Federal Reserve doesn’t even care what today’s mortgage rates are, except for how mortgage rates affect Personal Consumption Expenditures, the Fed’s preferred gauge for inflation.

The Fed Funds Rate and mortgage rates are independent and move differently.

However, the Federal Reserve isn’t entirely disassociated from mortgages because mortgage rates and the Federal Reserve both react to inflation.

Inflation’s effect on current mortgage rates is strong.

• When inflation is expected to rise, mortgage rates rise
• When inflation is expected to fall, mortgage rates fall

So, when the Federal Reserve signals inflation rates are climbing, mortgage markets react negatively. Mortgage rates go up. Conversely, when the Fed signals that inflation rates are dropping, mortgage rates drop, too.

What the Fed says can be more important than what the Fed does because the Fed controls inflation, and inflation controls mortgage rates.

Common Questions About the Federal Reserve

What does the Federal Reserve do?

The Federal Reserve makes U.S. monetary policy to influence economic growth, employment, and inflation rates.

How does the Federal Reserve change the economy?

The Federal Reserve sets the Fed Funds Rate, affecting borrowing costs, consumer spending, and business investment which, in turn, influences domestic economic growth.

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

Yes, the minutes of the FOMC meetings are made publicly available three weeks after the meeting occurs, providing insight into the committee’s economic outlook and policy decisions.

Does the Federal Reserve print money?

Printing money is a function of the U.S. Treasury. However, the Federal Reserve controls the money supply, including physical currency and bank reserves.

Does the Federal Reserve make mortgage rates?

The Federal Reserve doesn’t make mortgage rates, but Federal Reserve policy influences the direction in which mortgage rates move.

When will the Federal Reserve lower rates?

The Federal Reserve makes interest rate decisions based on the economy, its projected growth, and its threats. The Fed is data-dependant, which means that the Fed will lower interest rate when the data suggests it should.

Who oversees the Federal Reserve?

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