By Wendy Zara
You may have been hearing a lot lately about the Federal Reserve, better known the “Fed”, and its chairman, Ben Bernanke. You may also already know that the Fed has an influence on interest rates, which in turn influences the economy. But there is more to the Fed than meets the eye, and the reasons behind the interest rate changes may interest you as an investor.
The Fed was established in 1913 and consists of a seven-member board of governors, including the chairman. All are appointed by the president and approved by the senate. The nation is divided into 12 Federal Reserve districts represented by 12 Federal Reserve banks. Since its establishment, the Fed has become responsible for directing the nation’s monetary policy. The Fed also regulates the nation’s banks and other depository institutions and supervises directly many commercial banks. The Fed also tries to support other financial markets by maintaining stable conditions for financial transactions.
Although the Fed has many responsibilities, most investors only think of the Fed as having control over the interest rates that affect the U.S. financial markets. There are many different interest rates, but the Fed has direct control over only one of those interest rates, the “discount rate.” The discount rate is the interest rate the Fed charges its member banks on money borrowed for certain short-term loans. By controlling the discount rate, the Fed can influence the nation’s economic cycles, to some extent.
You may want to pay close attention to the actions of the Federal Reserve, especially if you have interest-sensitive investments. Your Financial Advisor can assist you in understanding how interest rate changes can affect the performance of your portfolio.
This article was written by Wells Fargo Advisors and provided courtesy of Wendy Zara in Beaufort, SC at 843-524-1114.
Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE
Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company.