It’s hard to blame the average citizen for not knowing exactly what the Federal Reserve is doing (it can get complicated), but it certainly doesn’t hurt to have an idea. The opinions and actions of the Federal Reserve leadership have real consequences for you, whether you realize it or not.
We found out through a recent study entitled Perceptions and Understanding of Money – 2020 that half of Americans have no idea what the Federal Reserve is doing. And yet, the Federal Reserve’s policy decisions can have a direct effect on:
- The value of your salary
- The amount you will have when you retire
- Your ability to become and remain employed
- The general state of the US economy, and by extension, the world economy
The Federal Reserve has an outsize influence on the money state in America, and the money state in America has an outsize influence on the global financial network. You are a part of it, so you may want to understand a little bit about what the Fed does and how its policies can affect your life.
Why the Federal Reserve Matters
It is not possible to explain why the Federal Reserve (commonly known as the Fed) matters without providing a basic foundation for what the Fed is. The Board of Governors of the Federal Reserve System notes that the Fed is essentially the central bank of the United States.
The Federal Reserve, created in December 1913, aims to “provide the nation with a safer, more flexible and more stable monetary and financial system, ”the Council said. This stated mission means little without more context.
What the Fed is doing
There are specific mechanisms that decision-makers within the Federal Reserve system use to manipulate monetary policy in the United States. The Federal Reserve Chairman (currently Jerome “Jay” Powell) is generally the face of the Fed’s policy decisions.
In terms of influencing monetary policy, the Fed can:
- Adjust the Federal Funds rate (commonly known as the interest rate)
- Regulate (and thus change) banking practices
- Buy assets on a scale that can affect the US economy
Interest rates are generally the measure by which Fed leaders are judged, as changing interest rates dictates the relative costs of loans and loans, which can heat or cool the US economic furnace.
In addition to setting monetary policy, the Fed also oversees US financial institutions (with varying degrees of success), performs payment services such as check clearing and digital payment processing, oversees money printing, and provides loans to banks.
The Fed does a lot, but you may be concerned about one thing: how the Fed’s decisions affect your life.
How Fed Decisions Can Affect You Directly
When the Fed the federal fund rate, it effectively changes interest rates for consumers. By doing this, the Fed can directly affect:
- The probability that a bank or other financial institution will provide you with a loan, such as a mortgage
- The terms of each loan you have been approved for
- The rate at which you accrue interest on your savings
As if these direct consequences of the Fed’s policies weren’t substantial enough, you could be further affected by the greater effect of interest rate movements on the economy. If Federal Reserve policy brings about a material change in economic activity, it can dictate:
- Whether you are hired for a job
- Whether you are fired for a job
- Whether you are forced at work to undergo a pay cut
- Whether you get a promotion or receive a bonus
- How the stock market is performing
You know better than anyone how these kinds of professional consequences can affect you on a daily basis. The global misery created by the 2008 housing crisis and after the recession has reminded many of the importance of understanding monetary policy at some level and protecting yourself as much as possible. Understanding and following Fed policy is the beginning of fiscal literacy.
Losing a job or feeling worried about your job security can take a toll on your health and overall quality of life. Conversely, receiving a bonus or promotion can increase your sense of accomplishment, security and zest for life. In that sense, the Fed’s potential to influence you is incalculable.
When phrased in these terms, it becomes clear that the Federal Reserve has a greater effect than the average person may realize. If you look at the Fed’s decisions through the lens of self-interest, you might want to pay a little more attention to the next headline about a rate hike or a forecast for US economic performance.
You’ll have a hard time getting Joe American to attend a seminar, even a webinar, on the importance of the Fed. This isn’t a knock, but it’s just to say it’s hard to keep up with the Kardashians and the latest Fed-related news.
General malaise over economic issues is not unique to America, as financial systems have become entangled webs that, on even superficial research, can trigger migraines. In addition, news about financial institutions such as the Fed should not generally be considered good news. Despite such hurdles, understanding the Fed and financial systems in general has its advantages.
For some, the main benefit of learning about the Fed is realizing the weakness of fiat currency, and shifting some of their assets to more simplistic and scarce value accounts like cryptocurrency, and Bitcoin in particular.
If you don’t mind some independence from the Fed, consider buying some cryptocurrencies. Why don’t you start mining Bitcoin with us? Create your free dashboard and buy some hashpower! Apply now!