CPA Scott Adair discussed the Federal Reserve and the impact it has on interest rates Monday during News 8 at Sunrise.
“The Federal Reserve is the central back of the United States,” Adair explained. “Effectively, it’s comprised of a Board of Governors and twelve regional independent banks. When I say independent, I mean independent from the U.S. government, but also attached to our enabled body, from that perspective.”
The primary function of the Federal Reserve is setting or establishing interest rates that we are all impacted by when we borrow money. “They buy and sell federally-backed securities,” said Adair. “By purchasing those securities, they are effectively pumping cash into the economy to lower or control interest rates. When they go to sell federal-backed securities, they are effectively increasing the interest rate because they’re taking cash from the banks.”
Adair said when the Fed buys or sells these securities it is effectively changing is the interest rate that the banks charge one another for short-term notes. “Indirectly, they control the interest rate that you and I borrow money from. If the banks are impacted by the interest rate that they’re loaning money to one another from, they’re going to raise the interest rate or lower the interest rate that they’re charging us when we go to borrow money from them.”