The Federal Reserve doesn’t set interest rates for mortgages, cars, credit cards or other consumer loans. Nor does it set rates for checking or savings accounts or other consumer bank deposits. The Fed doesn’t print money. Nor does it set prices for goods or services.

So what does the Fed do?

What the Fed does is set monetary policies intended to help the U.S. economy achieve maximum employment, stable prices and moderate long-term interest rates. That’s by law and according to the Fed’s website.

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What is the Fed?


The system is comprised of the Federal Reserve Board and the 12 regional Federal Reserve Banks. The board manages U.S. monetary policy, supervises U.S. financial service industries and oversees the U.S. payment system. The Fed regional banks, sometimes called “bankers’ banks,” provide specialized banking services to banks and aren’t open to businesses or the public.


Influencing interest rates

When people refer to “the Fed,” they often mean the Federal Open Market Committee, which has the important responsibility of trying to achieve the Fed’s goals by setting the federal funds rate, a target rate at which banks lend money to one another overnight.



“When the Fed increases the fed funds rate, they’re making money more expensive for consumers because banks have to pay more for the money they borrow from the Fed and that gets added to the interest rates consumers pay for loans,” Geller says. “If money becomes too expensive, employers aren’t going to compete for more employees, so wages aren’t going to increase and inflation is going to drop.”

Fighting inflation, recession



That applies to companies and their employees as well as consumers. If a company borrows when interest rates are low and then rates rise and the company can’t afford its higher debt payments, it can lead to workforce reductions, Abernathy says.


