- OVER 150 MORTGAGE PROGRAMS
The Federal Reserve
The United States central bank, the Federal Reserve, coordinates the
borrowing and lending activities of federally chartered banks. The
principal reason the Federal Reserve was created was to reduce severe
financial crises. One way of accomplishing this goal is to control the
amount of money that flows through the economy. By manipulating the US
money supply, the Fed influences inflation, unemployment, and the level of
US economic activity.
The Fed has a variety of tools that
it uses to control the money supply, but its chief policy tool is the
manipulation of "short-term" interest rates.
The Federal Reserve can adjust two distinct "short-term" interest rates:
Discount Rate: The discount rate is the interest rate which
banks pay the Fed for primarily overnight loans.
Funds Rate: The Fed funds rate is the rate banks pay to borrow
from other banks.
The Federal Reserve has direct
control over the level of "short-term" interest rates, the Fedís influence
over longer-term interest rates is less certain.