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    Cheat sheet to the Fed

     

    The Federal Reserve is the United States central bank, and it is technically independent of the branches of the government, yet subject to political appointments and potential legislative constraints.

    Taking advantage of the powerful impact time can have on your savings

    The stated goals of the Fed are to maintain low unemployment and to keep prices stable (keep inflation low).

    The Fed operates primarily by controlling the supply of money to the banks (monetary policy).  Banks hold a great amount of bonds in their reserves, and the Fed modifies the amount to influence the levels of cash available for lending. 

    When the Fed wants to stimulate the economy (often when there is a recession and when unemployment is high or moving higher), it buys bonds from the bank with cash.  This cash is then available (presumably) to lend out at lower interest rates (more supply, lower prices for the cash) in order to stimulate business activity. 

    Next: Inflation moves higher, what does that mean?

    Steven Podnos MD, CFP
    Steven Podnos, MD, CFP, is the principal of Wealth Care, LLC in Merritt Island, Florida.

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