Why one meeting in Washington sets your car payment
The Federal Reserve doesn’t set the rate on your loan. It sets the rate everything else is built on. Here’s how that reaches your wallet.
By Rusty Calloway No. 006
Eight times a year, a committee at the Federal Reserve meets and decides one number. Within days, that number shows up in what banks charge you to borrow.
The number
It’s the federal funds rate, what banks charge each other for overnight loans. When it goes up, borrowing gets more expensive across the board.
Where you feel it
- Credit card rates usually move within a billing cycle or two.
- Car loans and personal loans follow close behind.
- Savings accounts pay more when rates are high, which is the one upside.
Why they do it
When prices rise too fast, the Fed raises rates to cool spending. When the economy slows, it cuts them to get money moving again. Every decision is a bet on which risk is bigger.
What to watch
The statement released after each meeting. One changed word in it can move markets more than the rate decision itself.
Sources
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