Wednesday, December 15, 2021
Having all but tamed inflation, the Federal Reserve is poised to do something Wednesday it hasn’t done in more than four years: Cut its benchmark interest rate, a step that should lead to lower borrowing costs for consumers and businesses.
The Federal Reserve has been managing interest rates to control inflation, focusing on the rate of price changes rather than the price levels themselves. This strategy aims to return inflation to a sustainable level, currently pegged at 2%, rather than reversing price increases.
Inflation Rate: The inflation rate has steadily declined over the past year, reaching a 3-year low of 2.5% in August, according to the Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index.
Interest Rate Cuts: Economists expect the Fed to lower its benchmark interest rate, currently at 5.3%, by at least a quarter-point during its meeting on September 17-18. This move is anticipated to gradually decrease borrowing costs for consumers and businesses, impacting mortgages, auto loans, and credit cards.
Economic Performance: The U.S. economy has been growing steadily, with a robust annual rate of 3% in the April-June quarter, driven by strong consumer and business spending. However, the hiring rate has slowed, and the unemployment rate has risen slightly to 4.1%.
Despite the decline in inflation, many Americans remain concerned about high prices, particularly for essentials like food, fuel, and housing, which are significantly higher than pre-pandemic levels. This disparity in perceptions between economists and policymakers on one side and everyday consumers on the other is partly due to the "inflation overhang," where consumers may take months or years to emotionally adjust to higher price levels.
With inflation largely under control, the Fed is shifting its focus towards maintaining the job market, which has seen a rapid slowdown. The central bank aims to prevent any deterioration in labor conditions, with Fed Chair Jerome Powell indicating that the time has come to initiate reductions in the Fed's key interest rate to stimulate growth and employment.
The recent inflation data may influence the presidential campaign, with Vice President Kamala Harris and former President Donald Trump offering different solutions to address inflation and economic concerns. The Fed's decision to lower interest rates could enhance the perception of the economy among Americans, potentially impacting this year’s presidential election.
The Federal Reserve, often referred to as the Fed, is the central banking system of the United States.
Here’s a brief history and overview of its role in controlling the country’s funds:
The Federal Reserve Act was signed into law by President Woodrow Wilson in 1913. The establishment of the Federal Reserve System was in response to a series of financial panics, particularly the Panic of 1907. The goal was to create a more stable and secure financial system.
The Fed consists of a Board of Governors located in Washington, D.C., and 12 regional Federal Reserve Banks. This structure balances the interests of private banks and the public.
The Fed controls the money supply and interest rates to promote economic stability and growth. It uses tools like open market operations, the discount rate, and reserve requirements to make their decisions. It also supervises and regulates banks to ensure the safety and soundness of the banking system.
The Fed provides various financial services, including serving as a bank for the U.S. government and other banks.
Today, the Federal Reserve continues to manage monetary policy, aiming for maximum employment, stable prices, and moderate long-term interest rates. Its actions significantly influence the economy's health, affecting everything from inflation to employment rates.
Preparing for Economic Concerns
The Levels of Economic Collapse
Preparing for Economic Collapse
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