Economics for Dummies
So, I just read a little bit about the Federal Reserve, and how they've discontinued (at least momentarily) their streak of increasing interest rates and leaving it at 5.25%, in the belief that the economy will "settle down" and land "softly on both feet". They believe this will reduce the rates of inflation...correct? Oh lord, help me, as I am completely yet curiously ignorant of this whole process. Anyone willing to give me a simplistic, introductory rundown to what this all means? Anyone approve or dissaprove of the "Fed's" decision?
posted by Henrik Herb at 2:23 PM
1 Comments:
Hah, I've interacted way too much with the Fed in the past four years to make this short, but I'll try. The very basic rule is that the Fed raises interest rates to combat inflation, and they lower to combat poor growth/unemployment. So their current pause is a sign of uncertainty about the economy's direction rather than a fear of inflation. The previous 17(I think?) were due to a confidence that the economy would expand, and a fear that such expansion could lead to inflation (more consumer demand causes more manufacturer demand for resources, driving up those prices, leading manufacturers to raise their prices in return, ad infinitum). Ummm... I oculd go on for a while, so the long answer is here: http://www.frbsf.org/publications/federalreserve/monetary/
4:24 PM, August 11, 2006
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