http://www.bbc.co.uk/news/business-21266287
This article focuses on the fact that the Fed has maintained the same level of interest rates for a while now, not altering them above the 0.25% level. We know that the Federal Reserve uses monetary policy to obtain maximum employment, stable prices, and moderate long-term interest rates. The economy is recovering, but to be able to work towards maximum employment, the process has been slow and the unemployment rate remains high. The Open Market Committee have stated that they will maintain this level of an interest rate till the unemployment rate remains above 6.5%. It is important to take into consideration the impacts of this on the economy and the consequent behavior of firms and consumers, as we discussed in class. Pension funds are adversely being affected because they are suffering from underfunding, and the insurance industry have to increase their premiums as well to keep up but due to the fact that most policies are already in play, they can't raise the premiums for current policyholders, just the new ones- making them far less attractive.
I think that the Fed is making the right decision by keeping interest low because although the economy is doing much better, it still has not fully recovered and keeping interest rates low helps to provide a disincentive for saving and also an incentive towards borrowing and spending. The lower amount of saving and the larger amount of spending will help the economy to fully recover at a fast rate.
ReplyDeleteThat's absolutely true , the fed is doing this so to help the economy recover , which it is . But it could also lead to inflation raising commodities prices to rise.
ReplyDeleteKeeping interest rates low seems like a favorable option for the United States at the moment. The economy is definitely consumer and credit driven and having interest rates low to give people an incentive to borrow and a disincentive to save. This should help boost aggregate demand, which should positively affect GDP, get money flowing again and hopefully increase employment.
ReplyDeleteOn the side of inflation, I don't think the country has much to worry about at this moment seeing as inflation rates have been fairly low for the past years and the Fed thinks that they will remain this way. In addition, it should be noted that since the financial crisis, America has more than tripled its monetary base at the cost of little inflation.