Question.4219 - As you learned in the module readings, the Federal Reserve controls the money supply through monetary policy actions. For this discussion, research two current or historical examples from the United States where the Federal Reserve changed the federal funds rates. The first example should be one in which the Fed raised the rates, and the second example should be one where the rates were lowered. In your initial post, analyze your examples by addressing the following: Explain in one to two sentences how the Federal Reserve sets monetary policy in the United States. Based on your first example, what happened to the inflation rate when the Fed raised the federal funds rate? Illustrate your answer with specific details from the example. Based on your second example, what happened to the unemployment rate when the Fed lowered the federal funds rate? Illustrate your answer with specific details from the example. Be sure to cite your research appropriately.
Answer Below:
PHPWord body {font-family: 'Arial'; font-size: 11pt;} * {font-family: 'Arial'; font-size: 11pt;} a.NoteRef {text-decoration: none;} hr {height: 1px; padding: 0; margin: 1em 0; border: 0; border-top: 1px solid #CCC;} table {border: 1px solid black; border-spacing: 0px; width : 100%;} td {border: 1px solid black;} p, .Normal {margin-bottom: 8pt;} .Normal Table {table-layout: auto;} .Normal (Web) {font-family: 'Times New Roman'; font-size: 12pt;} .Strong {font-weight: bold;} .Emphasis {font-style: italic;} .Hyperlink {color: #0000FF; text-decoration: underline ;} .header {margin-bottom: 0pt;} .footer {margin-bottom: 0pt;} body > div + div {page-break-before: always;} div > *:first-child {page-break-before: auto;} @page page1 {size: A4 portrait; margin-right: 0.98402777777778in; margin-left: 0.98402777777778in; margin-top: 0.98402777777778in; margin-bottom: 0.98402777777778in; } The Federal Reserve sets monetary policy in the United States by adjusting the federal funds rate, which influences the interest rates that banks charge each other for overnight loans. By raising or lowering this rate, the Fed can control inflation and stabilize the economy. With regards to the first example where Fed raised the federal funds rate, I selected the article titled , "The Federal Reserve has raised interest rates again and signals more hikes ahead (Schneider & Saphir, 2018)."When the Fed raised the federal funds rate in December 2018, the inflation rate slowed. As a result, inflation was expected to be slightly below the Fed’s 2% target in 2019, showing that the rate hike helped keep inflation in check. With regards to the second example, I selected article titled, "The Federal Reserve lowers interest rates again — but hints at fewer cuts next year." When the Federal Reserve lowered the interest rates, they were trying to make borrowing money cheaper to help the economy grow. Even though they were cautious with how much they cut rates, the overall economy was still doing well. This meant that the unemployment rate stayed low because people were still finding jobs. The rate cuts were especially meant to help struggling areas like manufacturing and housing, which had been having a tough time. By making borrowing cheaper, the Fed hoped to support those areas and keep unemployment from rising. References Schneider, H., & Saphir, A. (2018, December 20). The Federal Reserve has raised interest rates again and signals more hikes ahead. World Economic Forum. https://www.weforum.org/stories/2018/12/fed-raises-interest-rates-signals-more-hikes-ahead/ The Federal Reserve lowers interest rates again -- but hints at fewer cuts next year. (2024, December 18). NPR. https://www.npr.org/2024/12/18/nx-s1-5230508/federal-reserve-interest-rates-economy-inflation More Articles From Macroeconomics
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