Ello, Gov' nor — What the Fed is, what it means to you

Dear Editor,

Over the last few years in the news we have heard alot about the Federal Reserve AKA “THE FED”. You could have heard something like “Will the Federal Reserve cut rates?” or “THE FED” is having their annual summit in Jackson Hole”. If you are like most people you are probably asking yourself “What is THE FED?” What do they do and why do they think they can fix this awful blight of inflation? Why does this group of mysterious, all powerful jet setting geniuses of the economic world, have meetings at lavious places like Jackson Hole or in the Swiss Alps? Why are these guys and gals called central bankers - if they are bankers can I get a car loan from them?

Many countries around the world have their own central bank. A central bank is part of the government which might issue currencies, have regulatory duties and direct monetary policy. In the United States our central bank is called the “Federal Reserve System”. Unfortunately you can’t get a personal loan from “THE FED” because they are concerned about their “dual mandate”. This dual mandate is a legal mission statement that directs their efforts towards 2 goals: stable employment and stable prices.

Depending on who is President of the United States, that person might like some of the Federal Reserve’s policies more than others. Because of this and other reasons,“THE FED” was created to be independent and hopefully not highly swayed by politics. “THE FED” consists of 12 Federal Reserve regional banks. These regional banks each have their own boards of directors and president.

Each regional president has a rotating turn on the interest rate setting board called the Federal Open Markets Committee (FOMC). In addition to these 5 regional presidents there are 7 members of the board of Governors, those people are called governors. The man who gives the most important press conferences and who is in charge is called the Chairman of the Federal Reserve - Jerome Powell currently occupies that role.

“THE FED”, specifically the FOMC has the responsibility of setting the interest rate ranges. Typically when unemployment is low, jobs are abundant, and all the economic indicators start looking amazing, something can creep into the system and wreck the party - that something is called inflation. Inflation causes prices to rise on everything from groceries to garden hoses. The FOMC comes in and tries to slow down inflation, they do this by raising the short term interest rate range aka Federal Funds Rate. The FOMC also does the inverse by lowering the Federal Funds Rate. Raising and lowering interest rates has been effective in the past in addressing inflation and employment levels or a slowing economy.

In the end of August the The Federal Reserve hosted a “Symposium” in one of their fancy places, Jackson Hole Wyoming. At this “Symposium” central bankers from all over the world come together to look at charts and graphs. At this summit there will be academics, economics and bankers will be looking for how much “THE FED” could cut rates at their next meeting. Will it be .50% will it be .25%?

If you are still reading - you are probably wondering at this point, why do I care about this? Here is a quiz - if you are planning on refinancing your home or have some credit card debt, which direction do you want the Federal Funds Rate range to go? Up or down?

Next time you hear on the news someone talking about “THE FED” or the FOMC, consider listening a bit closer. These factors could affect your family budget more than you might know.

Jacob Noonan,

Naponee, Neb.

— The writer is a banker and insurance agent in Stamford, Neb.