Economics-monetary Policy

Federal second-stringer and ExpectationsFox News reported in whitethorn 2006 that Federal apply policymakers had displaced the money rate in the face of an expected annex in pretension abandoned that raised rates of affair are expected to issue consumer outgo as surface as capital enthronization , thereby reducing demand as well as prices , the Federal Reserve hoped to run inflation through the accustom of its primary tool of influencing economic activity , i .e . the funds rate or the interest that banks charge each opposite on overnight loans which affects several other interests rates aerated to consumers and to businesses (Associated Press . Hence , whenever the Federal Reserves expects the rate of inflation to rise , the scrimping can expect a raise in interest rates . The increase in interest rates is in turn expected to slow voltaic pile economic activity in the nation . While retard down economic growth is not a devout idea , economists believe that gamey inflation could get steady worse . Therefore , by controlling an expected increase in inflation , the Federal Reserve attempts to save the frugality from the dire effects of inflation . If the Fed would rather grip for high inflation to set in before it takes measures to control it , i .e , if the Fed only acts to control the current high inflation rate , the economy may suffer drastically because it might be too late to help the economy in a significant wayOn the contrary , whenever the Federal Reserve expects a recession to set in , its policymakers will garnish the rates of interest in to make it more lovable for consumers to make purchases , and for businesses to invest in capital . However , outstanding declines in interest rates do not evermore lead to increases in spending and investment . In may 2002 , USA Today reported that this is exactly what had happened in the AmericanFEDERAL tolerate AND EXPECTATIONSPage 2economy . Reduced interest rates did not increase spending and investment .

Instead , they reduced the interest income of American families , thereby hastening the onset of recession or economic retardation (Kane . Of air , the recession and the low interest rates were accompanied by the inverted damp curve . This is because long-term investors had settled for get off yields by assuming that the economic growth as well as rates of interest were going to go so far lower in the future (The Living , 2002The investors act on expected rates of inflation and economic growth , as well as the economic factor of unemployment besides other factors The Fed does the aforesaid(prenominal) . However , expectations may not always be set This is the reason why the Fed s policies could sometimes fail to yield desired effects , whether they concern inflation or unemploymentFEDERAL permit AND EXPECTATIONSPage 3ReferencesAssociated Press (2006 , May 31 . Federal Reserve proceedings Show Uncertainty Over Future Interest say Hikes Fox News . Retrieved from http /www .foxnews .com /story /0 ,2933 ,197674 ,00 .html (20 February 2007Kane , Tim D (2002 , May . Behind Alan Greenspan s recession : the Federal Reserve Chairman s attempt to head off...If you want to get a full essay, order it on our website: Ordercustompaper.com

If you want to get a full essay, wisit our page: write my paper