How the Federal Reserve Impacts Your Money

The Federal Reserve plays a major role in shaping the country’s financial landscape and can influence your money as a result. Use this guide to understand how and get answers to common questions related to this independent government agency. 

What is the Federal Reserve

The Federal Reserve—often simply called “the Fed”—is the central bank of the United States. It serves as the backbone of the nation’s financial system by helping maintain stable prices, supporting economic growth, and regulating banks. Unlike your local bank or credit union, the Fed does not offer consumer accounts; instead, it influences the financial environment that institutions and consumers operate within.

What does the Federal Reserve do?

The Fed has several key responsibilities that influence the entire economy:

• Setting monetary policy, including interest rates
• Promoting financial system stability
• Regulating and supervising banks
• Managing the nation’s money supply
• Providing financial services to banks and the U.S. government

These actions directly and indirectly affect the financial decisions consumers make every day.
How the federal reserve impacts your money

1. Saving

When the Fed raises or lowers its benchmark interest rate, financial institutions often adjust their own rates in response. Higher Fed rates typically lead banks and credit unions to increase the yields on money market accounts, savings accounts, and certificates. That means your deposits may earn more interest. Conversely, when the Fed lowers rates, returns on savings often decline, which can slow the growth of your balances over time.

Even when rates fluctuate, keeping money in an interest‑earning savings account is still a smart move because it protects your funds while giving them the opportunity to grow over time. These accounts provide stability and easy access to your cash, unlike riskier investments that can lose value during economic shifts. And regardless of whether rates are high or low, earning some interest is always better than your money sitting idle and losing purchasing power to inflation.

2. Borrowing

The Fed’s interest rate decisions ripple through the broader financial system, influencing many of the borrowing rates consumers encounter every day. Although the Fed doesn’t directly set rates for auto loans, credit cards, or home equity lines of credit, its benchmark rate acts as a foundation that other lending benchmarks build on. When the Fed moves its rate higher or lower, those benchmarks typically shift as well.

Because of this, borrowing often becomes more expensive when the Fed raises rates. Credit card APRs may climb, adjustable-rate loans can reset higher, and new auto loans or personal loans may carry increased interest charges. That can raise monthly payments and make big-ticket purchases more costly to finance. When the Fed cuts rates, the opposite generally happens: borrowing becomes cheaper, which may make it easier for people to take out loans, refinance existing debt, or move forward with major purchases.

One important exception is long-term fixed mortgage rates. While they’re influenced by the broader economic environment, they tend to follow the 10-year Treasury yield more closely than the Fed’s benchmark rate. Because Treasury yields respond to factors like inflation expectations and demand for government debt, mortgage rates don’t always move in lockstep with the Fed’s decisions.

2. Inflation shapes your purchasing power

High inflation means your money buys less over time. The Fed works to keep inflation in check in several ways. When its too high, it raises interest rates to make borrowing more expensive, which slows consumer and business spending and eases pressure on prices. It can also sell government securities to pull money out of the financial system, further tightening financial conditions. 

When inflation is too low or the economy needs support, the Fed lowers interest rates and may buy government securities to inject money into the economy, encouraging borrowing, investing, and spending.

3. Employment levels influence your financial outlook

One of the Fed’s goals is to maintain maximum employment. When the economy cools or overheats, the Fed may take steps to stabilize job growth, which can affect job opportunities, wages, and overall economic confidence.

For example, if unemployment is rising and businesses are slowing their hiring, the Fed may lower interest rates to encourage borrowing and investment, making it easier for companies to expand and add jobs. 

4. Financial stability protects your deposits

The Fed oversees banks to help ensure they operate safely, which supports overall financial stability. This is different from deposit insurance. Your individual deposits are protected by agencies like the National Credit Union Administration (NCUA) for credit unions or the Federal Deposit Insurance Corporation (FDIC) for traditional banks. 

The Fed’s role is broader: it works to prevent widespread financial problems by examining banks, enforcing capital and liquidity requirements, and making sure institutions have strong risk‑management practices. It also runs stress tests on large banks to see whether they could withstand a severe economic downturn. Together, these efforts help reduce the chances of bank failures and protect the stability of the financial system that your money depends on.

When was the Federal Reserve established?

The Fed was established in 1913 with the signing of the Federal Reserve Act. Its creation followed a series of financial crises in the late 1800s and early 1900s, which highlighted the need for a central authority to stabilize the banking system and prevent widespread bank failures.

Who owns the Federal Reserve?

The Fed has a unique structure. It isn’t “owned” by any one person or entity. Instead:

• The Board of Governors is a federal agency, meaning it belongs to the public sector.
• The 12 regional Federal Reserve Banks operate as independent organizations, and member banks hold stock in them—though this “stock” does not function like corporate shares. Member banks cannot sell or trade it, and their control is limited.

In short, the Fed is a blend of public and private features, designed to balance independence with accountability.

Who appoints the head of the federal reserve?

The head of the Fed—officially known as the Chair of the Federal Reserve Board of Governors—is appointed by the President of the United States and confirmed by the U.S. Senate. The Chair serves a four‑year term, though they may be reappointed.

No matter how the Fed adjusts interest rates or guides the economy, GECU is here to help you navigate the financial landscape with confidence. As a Credit Union, we put our members first—not shareholders. We offer interest‑earning accounts, competitive loan rates, and local support designed to help you grow and protect your money in any economic environment. You can become a member if you live or work select counties in Ohio, Indiana, and Kentucky!