What are federal reserve interest rates and how do they affect the economy?

I know what the federal reserve is and I know what interest rates are. Now what is a federal reserve interest rate and what the heck does it mean to me?

By | 2013-08-27T05:19:11+00:00 August 27th, 2013|Mortgages Home Loans Interest Rate|2 Comments

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  1. jimproz August 27, 2013 at 6:52 AM - Reply

    The discount rate is the interest rate banks are charged when they borrows funds overnight directly from one of the Federal Reserve Banks. When the cost of money increases for your bank, they are going to charge you more as a result. This makes capital more expensive and results in less borrowing. Spending decreases, causing it to become more difficult for prices to rise; the opposite being true when capital becomes less expensive due to a decrease in the discount rate

    The Federal funds rate is the rate that banks charge each other for overnight loans. “Why would one bank borrow cash from another?” you ask. The Fed can require banks to keep a certain percentage of assets in the form of cash on hand or deposited in one of the Federal Reserve banks. From time to time, it will establish a required ratio of reserves to deposits; when this ratio is increased, more cash must be kept in the vault at night, making it more difficult (and expensive) for funds to be acquired. When the reserve requirement is lowered, the money supply is loosened; because less cash has to be kept on hand it becomes easier to acquire capital.

    The increased (or decreased) cost of acquiring funds is passed on to consumers as banks adjust their prime lending rate (the rate banks charge their best customers) to compensate.

    I recommend you watch this video online: Fiat Empire.
    It clearly explains why the Federal Reserve violates the Constitution and is basically a PRIVATE BANKING CARTEL. You will see how the Fed was formed and who was behind it and what their objectives are in doing so. It also explains very important monetary policies that most people need to know like fractional-reserve banking and the unlimited ‘monetization’ of debt. If you want to know the biggest culprit of our whole financial mess, look no further than the Federal Reserve.

  2. Alby August 27, 2013 at 5:54 AM - Reply

    Federal Reserve Funds Rate: 1.00%
    Federal Reserve Discount Rate: 1.25%

    The Funds rate is the rate at which the Federal Reserve manipulates the inter-bank lending to achieve a bank to bank lending rate of 1.00%. The Discount Rate is the rate at which banks pay if they need to borrow money directly from the Federal Reserve.

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