property development finance

Federal Reserve Rate Changes And Consumer Interest Rates
By Kalinda Rose Stevenson, PhD
Interest rate changes are the most widely publicized method the Federal Reserve uses to control the money supply.

You will see all kinds of speculation about what the Federal Reserve will do before such meetings, which affects the stock market. You will also hear media reports about how changes in the interest rates will affect interest rates for consumer items, such as mortgages and credit cards.

This media attention obscures an important fact. The interest rate, which is also called the discount rate, concerns the rate commercial banks must pay when they borrow money from Federal banks. The interest rate changes do not directly affect your credit card interest rate.

The Fed changes the discount rate to make it more

10 Financial Commandments for Your 20s
Just starting out? Set yourself up for a lifetime of money success with these time-tested principles.
What Went Wrong at Dodge & Cox?
The firm's intensive research failed to anticipate the implosion in financial stocks.
"Blue Interstates" Could Save Firms Money
Waterways, ports and docks are getting stimulus money to help revive a greener way of hauling: over water.


or less profitable for commercial banks to borrow money. The banks use this borrowed money to make loans to their customers.

These are the essential points to keep in mind: 1. The purpose of the Federal Reserve system is to control the amount of money in the system. 2. The purpose of commercial banks is to make money. They make money by loaning money to borrowers.

Whenever the Fed increases the interest rate that the commercial banks must pay to borrow money, the banks cannot make as much profit on their loans to its customers. When the Fed decreases the interest rate, the commercial banks can make more profit on their loans to bank customers.

This is why the change in interest rate matters to all of us. It increases or decreases the amount of money available for banks to loan, which increases or decreases the amount of money in economic system. These changes affect the speed by which money is increased or decreased.

The bottom line fact is that the Fed does not change consumer interest rates. The banks might decide to change interest rates on credit cards and adjustable rate mortgages, but these changes are not directly tied to any changes the Fed makes in the rate it charges banks to borrow money.

By Kalinda Rose Stevenson, Ph.D.

Article Source: http://www.articlemap.com

Are you earning money or making money? Check out real estate investing book book, "No Money Limits," to learn how a bank creates money. Use owner financing to sell quickly.

---