Know your Federal Reserve

Bank regulators hold a routine two-day session this Tuesday and Wednesday -- and if there’s one way to know you’re an incorrigible business writer, it’s when you find yourself waiting with bated breath for their 2:15 p.m. EDT interest-rate announcement.

But if you’re looking for suspense, instead rent the science fiction thriller, Minority Report, with its way-cool scene of Tom Cruise reading an e-paper version of USAToday. With mixed economic reports and a gun-shy stock market, the Federal Open Market Committee won’t be boosting borrowing costs off their rock-bottom levels any time soon.

The fed funds rate is at 0.25 percent – down from 2 percent a year ago. Any lower and banks would be paying us to borrow money instead of the other way around!

That underlying rate, set the by federal banking system, is what financial institutions charge one another for overnight loans that keep their cash flow positive. In turn, they add a premium – it varies depending on the type of loan – to the finance charges they levy on customers for mortgages, car notes, credit cards and other debt. (Here’s a handy Bankrate.com chart that tracks a variety of key interest rates.)

When money is more expensive, businesses are limited in what they can spend to grow and consumers can’t stretch their dollars as far, either. They don’t spend on goods; businesses suffer more; their shares are worth less, and the downward spiral whirls on. So when regulators are trying to get the economy humming again, they keep rates low.

Of course, that’s a highly simplified version of a complex system that one could spend a lifetime studying -- which, for most of us, ranks right up there in appeal with trigonometry or the foraging habits of Canadian geese. But getting to know the Federal Reserve – parent entity to the FOMC -- and how the nation’s banking system operates is worth a bit of study. In addition to setting monetary policy, this body regulates nitty-gritty financial matters such as payment-card and check processing, truth-in-lending laws and more. Subscribe to the fed’s Bulletin newsletter for access to papers, reports and research data that may provide grist for econ or personal finance stories.

Speaking of personal finance, the Federal Reserve system includes 12 regional federal banks; here’s a handy map with links to each bank’s site. Most provide a treasure trove of regional economic data, research, forecasts and consumer advice, all of which can help you reflect your readers’ situation more precisely. Note events and conferences as well; get permission to attend and mingle with key financial executives in your neck of the wood.

And if this post has whetted your appetite for more, check out this free informational DVD, "In Plain English: Making Sense of the Federal Reserve." It ain’t exactly the latest M. Knight Shyamalan plot-twister, but it might give you an edge in producing coherent financial prose.

Come back to Your Daily Tipsheet each morning for advice on where to find sources, background and creative ways to make financial news and trends relevant to your audience.