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The reason behind the FED's increase and decrease in the interest rate

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shahriar33
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last yearSteemit2 min read

The Federal Reserve (also known as the Fed) is the central bank of the United States and is responsible for implementing monetary policy. One of the main tools the Fed uses to influence the economy is the setting of interest rates.

The Federal Reserve can increase or decrease interest rates to achieve its monetary policy goals. The main goal of the Federal Reserve is to maintain price stability, which is defined as keeping inflation low and stable.

If the Fed believes that the economy is growing too quickly and that inflation is likely to rise, it will increase interest rates to slow down the economy. Higher interest rates make borrowing money more expensive, which reduces spending and slows down economic growth. This will help bring inflation back to target.

On the other hand, if the Fed believes that the economy is growing too slowly and that there is a risk of deflation, it will decrease interest rates to stimulate economic growth. Lower interest rates make borrowing money cheaper, which increases spending and helps to boost economic growth.

Additionally, the Federal Reserve also uses interest rates to achieve other goals such as maintaining full employment, promoting stable growth, and ensuring financial stability.

It is important to note that the Federal Reserve's decisions on interest rates are based on a variety of economic indicators and data, such as inflation, unemployment, gross domestic product (GDP), and other measures of economic activity. The Fed analyzes this information to assess the current state of the economy and make decisions on interest rates.

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