What's the Federal Reserve?
Why one phone call from the Fed moves every stock.
The idea
The Federal Reserve — 'the Fed' — is like the boss of money for the whole country. Its biggest job is setting interest rates, which decide how expensive it is to borrow money. When the Fed raises rates, borrowing costs more and stocks often dip; when it cuts rates, money gets cheaper and stocks often rise. That's why one Fed decision can move the whole market. 🏛️
Words to know
- Federal Reserve (the Fed)
- The US central bank that manages money and sets interest rates for the whole country.
- Interest rate
- The cost of borrowing money, set in large part by the Fed.
- Rate hike / rate cut
- When the Fed raises rates (hike) or lowers them (cut), which ripples through the whole market.
- Growth stocks
- Companies expected to grow fast in the future; they often fall hardest when rates rise.
- Dual mandate
- The Fed's two legal goals: keep prices stable (~2% inflation) and keep most people employed.
Try it — no account needed
The Fed raises interest rates today. The news says "borrowing money just got more expensive." What probably happens to stocks?
In the full lesson
- 1Make the call
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