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Hamptons.com
October 21, 2015

Why The Federal Reserve Matters To You

Rocco A. Carrieroby Rocco A. Carriero
in Real Estate
Home Real Estate

The Federal Reserve (the Fed) has been highly prominent in the news over the last few months as they debate when to begin raising interest rates. The Federal Reserve’s decisions can have a significant impact on the economy, but the impact on individuals is not always as clear.

By law, the Fed has two primary objectives: To maximize employment and keep inflation under control. Of course, the Fed does not have a magic wand to control economic activity, but it seeks to influence economic trends through what is called monetary policy, or the ability to push interest rates higher or lower.

Higher interest rates typically ease the pace of economic expansion by making loans for everything from homes to automobiles more expensive. The slower pace of economic growth should subsequently ease inflation pressures. Conversely, lower interest rates should encourage borrowing, which should lead to higher spending and as a result, greater demand for employees. For individuals, this can mean better job prospects or higher wages.

How do they do it?

Technically speaking, the Fed does not directly raise or lower the interest rates that individuals or corporations pay for loans or receive on savings. Such interest rates are called “market-based” rates, as ultimately they are determined by the demand for loans and the supply of savings. However, the Fed does have considerable influence over what is called the “Fed Funds” rate. This is the interest rate that banks are charged on overnight loans.

Raising or lowering the rate at which banks themselves must pay to borrow typically influences the rate that banks charge their customers for loans, or what they are willing to pay their depositors. The relationship, however, is not direct. For instance, the Fed may seek to raise interest rates, but if there is not strong enough demand for loans, banks may find it difficult or impossible to pass along the higher rates to customers.

How interest rates affect the economy

During the financial crisis in 2008, as the economy fell into a deep recession, the Fed took the drastic action of cutting the Fed Funds target rate to near zero percent. It has maintained this position since that time. Some believe the economy has recovered sufficiently and the Fed can now afford to raise rates, at least modestly. Others are concerned that if rates rise too quickly, it will dampen the rate of economic growth and potentially have a negative impact on economic growth.

What a change in rates could mean

Ultimately, any Fed decisions that affect credit markets can have an impact on us as savers or borrowers. Over time, if the economy continues to slowly strengthen, inflation pressures could become more prevalent, thus prompting Fed officials to push interest rates higher. That could mean higher mortgage rates, which might translate into having to buy a lower-priced home to afford the payments. It also may make it more expensive to obtain an automobile loan. Of course, you don’t want to make a major purchase – such as a home or car – simply because the Fed may raise rates. Ensure that any big expenditure fits within the context of your long-term financial plan.

For savers, the implications are a bit more complicated. You have savings that you want to lend (to generate interest income), but if there are few potential borrowers, or a lot of savers with funds to lend, the return on those savings could remain low regardless of Federal Reserve actions.

What’s ahead?

To this point, speculation regarding the Fed policy has had limited impact on the economy itself. Growth has remained modest but steady. By contrast, the investment markets have been much more volatile in recent months as investors tried to predict the Fed’s moves. Be prepared for continued ups-and-downs in the market, due at least in part to ongoing efforts to try to predict potential changes in direction of the Federal Reserve’s policies.

Finally, keep in mind that there a wide range of factors outside of the Fed’s control that can significantly impact the economic situation. So although the Fed’s tools can be a powerful influence over the economy, they are by no means absolute.

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  • LVIS thrift shops are open Tuesdays through Saturdays 10 AM through 5 PM

donations are accepted Wednesday through Saturday 10 AM through 1 PM by appointment 

located at 95 Main St East Hampton
  • Check out the Top Hamptons Events This Weekend!⁠
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🚗 The Bridge IX⁠
📅 Sat, Sept 13 | 2–7PM⁠
📍 The Bridge, Bridgehampton⁠
Over 300 rare automobiles showcased across stunning landscapes.⁠
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🎬 23rd Annual Surf Movie Night⁠
📅 Fri, Sept 12 | 5:30–9PM⁠
📍 Southampton Arts Center⁠
Surfboard swap, live music & outdoor film screening. 🌊⁠
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🍝 San Gennaro Feast of the Hamptons⁠
📅 Sat, Sept 13 – Sun, Sept 14 | 10AM⁠
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Italian pastries, live entertainment & fireworks Sat @ 8:15PM 🎆⁠
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🎭 In Process: Roderick George⁠
📅 Sat, Sept 13 | 7PM⁠
📍 Guild Hall, East Hampton⁠
A special in-process presentation of The Missing Fruit (Part I).⁠
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🎤 Sheena Easton at WHBPAC⁠
📅 Sat, Sept 13 | 8PM⁠
📍 Westhampton Beach PAC⁠
Grammy-winning artist live on stage!⁠
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☕ Cars & Coffee⁠
📅 Sun, Sept 14 | 9–11AM⁠
📍 Bridgehampton Museum⁠
Classic & exotic cars, food, drinks & live music.⁠
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🛍 Hampton Vintage⁠
📅 Sun, Sept 14 | 10AM–5PM⁠
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Shop unique vintage finds!⁠
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🎶 Hamptons Festival of Music Finale⁠
📅 Sun, Sept 14 | 4PM⁠
📍 St. Luke’s Church, East Hampton⁠
Featuring Cimarosa, Berlioz & Beethoven.⁠
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🍷 Wine Dinner with Pradorey at R.AIRE⁠
📅 Tues, Sept 16 | 6:30PM⁠
📍 Hampton Bays⁠
Five-course tasting menu with exquisite wine pairings.⁠
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🎥 Toy Story 30th Anniversary Screening⁠
📅 Sept 12–15 | Various Times⁠
📍 Southampton Playhouse⁠
Celebrate Woody & Buzz’s timeless adventure!⁠
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Check out more events at Hamptons.com (Link in Bio)⁠
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#carshow #hamptons #sangennaro #sangennarofeast #winedinner #bridgeIX
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Over 400 guests celebrated ARF’s remarkable work with cocktails, followed by dinner catered by Olivier Cheng. Peter Marino, accompanied by his daughter and ARF Board Member Isabelle Trapnell Marino, presented the Scarboroughs with their award. ⁠
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📸: Patrick McMullan/PMC⁠
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Check out the full gallery at Hamptons.com (Link in Bio)⁠
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#arf #bowwowmeowball #hamptons #animalrescuefund #animalrescue
  • Make sure to add this event to your list for next summer
#Seafood #localeats #mtk #montaukgreen
  • I recently toured the new Rolex Boutique by London Jewelers in East Hampton, and it’s one of the most beautiful retail spaces I’ve ever stepped into. Located on Newtown Lane, the boutique is set inside a restored historic home that dates back to 1897, originally designed as a summer cottage.⁠
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From the outside, it has that classic East Hampton charm, cedar shingles, white trim, and lush landscaping. But once you step inside, it’s all about quiet sophistication.⁠
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The space is warm and welcoming, with walnut wood paneling, soft neutral tones, and beautiful textures throughout. There’s a fluted marble wall in a rich green Verdi Alpi stone that immediately catches your eye. It’s one of those details that’s understated but unmistakably Rolex.⁠
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#rolex #easthampton #hamptons #luxury #watch⁠
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📅 Sun, Sept 7 • 11AM⁠
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Join Indigenous artist Savannah LeCornu to learn traditional beading techniques.⁠
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📅 Tues, Sept 9 • 8:30AM–5PM⁠
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