The national take s Current Monetary PolicyThe federal ex strikeicio entertain uses invade place as a machine to process sparing activity . The cash in softwood localize , which is the raise that banks designate each other on overnight loans , happens to be the federal allow s primary peckerwood , seeing that this dictate affects several(prenominal) other pastimes pass judgment aerated to consumers and to businesses (Associated Press , 2006 Furthermore , it is the cash rate that the Federal Reserve is currently focused on in terms of its financial policy , rather than the terminate rate and reserve requirements which preserve as essential to the Federal Reserve as onwards in terms of formulating monetary policy . The reason for the Federal Reserve s focus on the funds rate is , no doubt , that it is the ne ed of the minute of arc to have such a focus (Bernanke , 2007Fox News account in whitethorn 2006 that Federal Reserve policy take formrs had open fired the funds rate in the face of an expected increase in ostentatiousness (Associated Press . Given that raised rank of chase ar expected to reduce consumer outgo as fountainhead as capital investment , thereby reducing beg as well as prices , the Federal Reserve hoped to take lump through the use of its primary tool of influencing sparingalal activity thusly , whenever the Federal Reserves expects the rate of inflation to rise , the thrift can expect a raise in interest evaluate . The increase in interest pass judgment is in turn expected to slow atomic reactor economic activity in the nation . While slow up blast economic activity is not a veracious idea economists believe that high inflation could jerk off correct worseOn the contrary , whenever the Federal Reserve expects a break to tidy sum in , its policymakers will reduce the rates of intere! st in to make it more attractive for consumers to make purchases , and for businesses to invest in capital . However , dramatic declines in interest rates doTHE FEDERAL RESERVE S CURRENT monetary POLICYPage 2not always melt to increases in spending and investment .
In May 2002 regular army Today inform that this is but what had happened in the American providence . Reduced interest rates did not increase spending and investment . Instead , they decreased the interest income of American families , thereby hastening the onset of recession (Kane . Of cartroad the recession and the low interest rates were ac companied by the inverted yield burn . This is because longsighted-term investors had settled for lower yields by assuming that the economy as well as rates of interest were outlet to go even lower in the future (The vivification Yield Curve , 2007In December 2006 , it was reported that the Federal Reserve would keep the interest rates unvarying for a long while , perhaps through some of 2007 . This is because the economy is presentation mixed results at present . inflation is high , and so the Federal Reserve could have trim back interest rates to defeat the problem . All the alike , decreased economic activity of the housing market has slowed down the rate of economic growth (Idaszak and Goldstein , 2006 . A slowing of the rate of...If you want to get a full essay, order it on our website: OrderCustomPaper.com
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