Fed Interest Rates Explained With Common Sense

I learned that common sense isn’t common when I was in school and the teachers kept saying tommy this is common sense. Which it isn’t, because even breathing is common sense, that why when a baby is born you gotta slap em to make sure they cry those cause breathing.

So if right now you’re wondering why you don’t know about the fed, how they usually interest to adjust the economy and how it affects the economy don’t feel stupid, because none of this common sense.

However though by the end of this video, you’ll be able to understand it as it was.

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First thing: Understand that are economy wasn’t here before we were here, we created this economy, and we created every single part of it, that means that the economy was man made. Now obviously if you are going to build a system, you’ll put a few parts in the system to make sure that if things get out of control you can take back control.

Its kinda how in car although we have the speed peddle and the break peddle, we also have the emergency break, seatbelts, the beeping thing and lastly we also have the airbag in case things go terribly wrong.

1. the greedy farmer

-He has monopoly on the eggs ( his goal is to make as much money as possible ), and he borrows his eggs from the Fed to sell

-When the Fed makes the eggs very cheap he buys a lot of them and he sells them for cheaper which increases sales, he hires new people, and he makes a lot more money

-But because the fed lowers it rates the people also borrow more money, so they have more money than they usually do ( so naturally prices go up, Demand and Supply )

But whenever the Fed Raises the rates ( makes it more expenses to borrow money and to get eggs )

-The farmer borrows a little less

-He higher less people

-And he has to slow down

Economy Break down

2. Federal reserve at the Top:

-These people print money ( aka they decide the money supply in the economy ) and its not just by treasury printing actual money but by the fed doing quantitative easing by purchasing assets

-They have two main goals, they want to maximize employment and they want to control inflation

3. Now what do interest rates have to do with this

-Well the fed meets about 8 times a year ( before you call me smart, I just googled it )

-And they have been discussing about the economy and what steps to take

Here is what’s happening:

-The federal reserve can manipulate interest rates, which usually causes other market rates to interest

-In English this means, if they person lending money to the bank raises their raise, the bank will raise their rates too and business will borrow less and most likely you will borrow less too ( meaning the economy starts to slow down )

How can this possibly affect the stock market and Us

-Well think about when the rates are super low and everyone is borrow a lot of money including business to expand and grow, they usually see an increase earnings and the economy grows ( that’s why the fed lowered rates in 2020 to prevent a massive deep )

-So the prices of stocks go up like crazy, especially if it makes no sense to save money or buy bonds because you wont get paid anything really for doing that

4. Overall

-The Fed doesn’t want to make the economy go to fast because inflation can run rapid and that’s not good

-The fed doesn’t want the economy to slow down to much because then it can go into a depression

-The fed is looking for the Sweet Spot

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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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