This post originally ran in the Chicago Tribune. 

Now that President Donald Trump has named Jerome (“Jay”) Powell as the next Federal Reserve Chairman, to succeed Janet Yellen, you may experience one of those, “Why do I care about this?” moments.

Perhaps more than any other institution, the Federal Reserve impacts our lives in direct ways, from how much interest our savings accounts earn, to the cost of borrowing money to finance a car, to make a home purchase or to start a new business. Even the cost of our groceries is affected by the Federal Reserve.

Let’s start with a little bit of history. Congress established the Federal Reserve more than a century ago to build a more stable and secure financial system. Prior to the creation of the central bank, the US economy was plagued by frequent episodes of panic, bank runs and failures, which often led to a drying up of credit availability. One of the more severe episodes occurred in 1907 and nearly took down the whole economy, until one banker, John Pierpoint (“J.P”) Morgan, personally intervened and wrangled his rich friends to arrange emergency loans for financial institutions. This episode fueled a reform movement, which prompted Congress to establish the Federal Reserve System in 1913.

However, it was not until after the Great Depression that the policy making arm of the Fed was created. Through the Banking Act of 1935, the Federal Open Market Committee (FOMC) was tasked with creating policies that influence the availability and cost of money and credit with a basic objective: to promote a healthy economy. In the late 1970’s, Congress laid out two explicit policy goals that the Fed should pursue: price stability (meaning low and stable inflation) and strong enough economic growth to foster maximum sustainable employment. Together, these goals are referred to as the Fed’s “Dual Mandate”.

The Fed has a number of tools that allow it to fulfill its dual mandate. The one you hear about most frequently is the “Federal Open Market Committee meeting” or the “FOMC,” where voting members gather to determine the target for a key interest rate, called the federal funds rate. This is the interest rate that financial institutions charge each other for loans in the overnight borrowing market, which in turn becomes the rate on which many consumer loans and savings rates are determined. For investors, those interest rates can have a big impact, though an indirect one. As the banks adjust to the interest rates set by the Federal Reserve, the banks increase or lower interest rates on every asset class. Interest rates for mortgage rates, credit cards, cars and many other items – and the rates businesses like grocery stores pay on their purchases -- rise and fall downstream of the Federal Reserve.

During the financial crisis, the Great Recession and the tepid recovery, the Fed dropped rates to zero and used another tool to rescue a faltering economy: It purchased government and mortgage-backed bonds. The program, known as Quantitative Easing (“QE”) helped restore the functionality of markets, which had essentially locked up. QE also boosted the economy by lowering interest rates. There were some economists who worried that the Fed’s policies would lead to inflation, but prices have remained low, something for which consumers have been grateful!

Powell, a member of the Federal Reserve Board of Governors since 2012, has always voted with Yellen on interest rates and has never offered a dissenting opinion in speeches in the way that some other Fed officials have, leading investors to believe that he will maintain the current slow and steady approach to rates.

There’s one more way the Fed impacts everyone: Following the financial crisis, Congress passed the Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), which expands the Fed’s regulatory responsibilities over the nation’s systemically important financial institutions (SIFIs). The Fed became partly response for making sure the Great Recession doesn’t happen, again.