Friday, August 11, 2006

How the Fed Affects You

By now, you have probably heard that the Federal Reserve chose on Tuesday to leave the federal funds interest rate unchanged after having made 17 consecutive increases over the past two years.

Perhaps the most confusing thing about Fed announcements is why they really matter. The Federal Reserve isn't a bank that has individual customers, so the rates the Federal Reserve charges or pays don't have a direct impact on any one person. However, because many financial institutions deal directly with the Federal Reserve on an ongoing basis, changes at the Fed do rapidly work their way across the spectrum of banks, lending institutions, and investment companies, and then they eventually reach your bills and account statements.

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