I learned that low fed interest rates makes ppl borrow more, stimulating economy as money circulation is higher. why ever increase it then, if increasing it worsens the econ?
Also ,is the fed reserve actually the goveernment bank? heard it was still a giant private bank and the goverment has nothing to do with it
In: Economics
The Fed has 2 primary mandates. Stabilize prices, and keep unemployment low. It accomplishes these with a variety of tools, but primary by controlling the Federal Funds Rate, which is the interest rates banks charge each other for short term loans. Other interest rates, such as auto-loans and business loans, tend to follow this rate.
When interest rates are low, inflation rises and unemployment goes down. When rates are high, inflation goes down and unemployment rises. To balance the two, the Fed adjusts the rates up and down as new data comes in to try and keep inflation at a low and stable level and keep unemployment from growing too high. If it kept rates too low, even as unemployment had effectively bottomed out, inflation would go up, meaning prices for everything are going up faster and are must less stable and predictable. So it must raise rates to keep inflation in check.
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