Everything you need to know about the Fed, America's central bank, which probably helped you buy a house last year
Put simply, the Fed controls the money that flows through the US economy. It acts as the country's bank by processing transactions between the government and Americans, as well as ensuring banks can dole out loans. It also stabilizes the financial system in times of crisis by lowering borrowing costs and keeping financial markets afloat.
While the Fed's goals come from Congress, the two bodies are independent. Its policy decisions don't come from lawmakers or the president, and it doesn't receive funding from Congress. The president does appoint governors to the Fed's board, but Fed officials will be quick to note that their actions are theirs alone. By operating independently, the Fed can assure its policy actions are nonpartisan and not tainted by any politician's desire for a stronger economy.
During times of crisis such as the coronavirus pandemic, the central bank can also help banks out by purchasing two kinds of assets: Treasury bonds and mortgage-backed securities. The idea is that such programs —known as quantitative easing — help financial markets function smoothly by supplying cash for them to lend and invest. This helps keep the economy stable.The Fed's control of interest rates touches nearly all parts of the economy.
Commentary around the Fed's purchasing of MBS and Treasurys from banks can have similar effects. Stocks tend to drop when the Fed hints at paring back purchases, as such a retreat would mean less money flowing into banks to support lending and investing.
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