If you rely on interest from certificates of deposit for income, you're probably not too happy with the Fed keeping interest rates at rock bottom.
"Retirees want to live on the interest on their CDs," Reese says. "The Fed determines whether they can do that or not."
CD rates largely follow the short-term interest rates that track the federal funds rate. However, Treasury yields and other macroeconomic factors can influence rates on long-term CDs.
Individuals should focus on the real rate of return on CDs, after inflation is taken into account, says Casey Mervine, a senior financial consultant at Charles Schwab. In the late 1980s, for instance, you could earn double-digit rates on CDs, but with inflation also in the double digits, your actual earnings were much lower due to the erosion of your purchasing power.
Recognize that the Fed's actions are intended to prompt you to invest in higher-yielding bonds and stocks, thereby fueling the economy.
"There's an old adage, 'Don't fight the Fed,'" Mervine says. "When the Fed can keep you from earning anything in safe money, you really have to take some measured risk."
The federal funds rate chiefly influences short-term interest rates, because it's a rate on money lent overnight between banks, but it also trickles through to medium-term fixed loans, such as auto loans.
"The rate the Fed sets ends up affecting almost everything in our economy," Reese says.
Whether the lender is a credit union, bank or other institution, it will price auto loans relative to the prime rate, which moves up and down in sync with the federal funds rate.
If a bank is charging its customers 4.64% for a 60-month loan on a new car, and the federal funds rate increases by a half percentage point, the lender will bump up the rate to about 5.14%. Auto loans also benefit from being sold into the secondary market, making more investors' dollars available to finance your car purchase or refinancing.
When the Fed lowers the federal funds rate, lenders can finance home loans more cheaply. As a result, they can reduce the interest rates they charge for a fixed-rate mortgage.
In recent years, the Fed has kept the federal funds rate low in an attempt to stimulate the housing market.
"The Fed is making homes affordable at all-time levels with low interest rates on mortgages," Mervine says. "A lot of people are underwater, but if they can save and pay down their prior mortgage, they can refinance at extremely low rates."
The Fed can even control the shape of the yield curve, or the relation between interest charged for 1-year loans, 3-year loans, 5-year loans and so on. "If they want to bring down 10-year rates, they'll go out and buy 10-year securities," says Oghoorian.
Mortgages are pegged to the 10-year Treasury rate, because refinancings and early payoffs effectively give a 30-year mortgage a 10-year lifespan, Oghoorian says. Competition and market conditions also affect rates.
Also directly tied to the federal funds rate: your home equity line of credit, or HELOC. That's because HELOC rates are typically linked to the prime rate. When the Fed raises or lowers its target rate, HELOC rates follow suit.
A HELOC is a great way to refinance or restructure your debt, Mervine says, "if you've got home equity that you can use to consolidate high-interest credit card debt or other less accommodative types of debts."
The Fed has tried to stimulate the economy by encouraging the use of HELOCs through low interest rates. If you take out a HELOC to make home renovations, the money you pay the contractor is then used for his or her purchases and helps fuel the economy.