If you paid attention to financial news at all last year, you would have likely seen a lot of coverage on how quickly interest rates are rising. Looking back to 2008 and coming out of the Great Financial Crisis, the federal funds target rate range has been near zero. Rates started to rise in 2017 until right before the COVID-19 pandemic hit when they decreased back to zero again in an attempt to keep the economy afloat.
The agency responsible for controlling the underlying rate increases and decreases is the Federal Reserve, also known as “The Fed”. The two main goals of the Fed are price stability and maximum employment. The Fed uses conventional tools like interest rate policy and unconventional tools such as quantitative easing and quantitative tightening in an effort to achieve those two goals.
In this article, I will explain what the Federal Reserve is and what they set out to do plus explain some of the lingo so you are able to understand what is going on when people are talking about the “Fed”, what they are doing now, and how it all may affect you.