Fed and Interest Rates Essay example -- essays research papers

The cater and Interest Rates     Dave Pettit of The ring roadway Journal writes a daily column that appears inside the first rapscallion of the journals Money & Investment section. If the headlines of Mr. Pettits daily column are whatsoever accu mark record of economic concerns and current issues in the business world, the recently weeks of March and the early weeks of April in 1994 were intensely concerned with disport grade. To quote, "Industrials jar against Up 4.32 Points Amid Caution on Interest Rates," and "Industrials Track On 13.53 Points despite Interest-Rate Concerns." Why such a concern with occupy rates? A week before, in the last week of March, the Fed had pushed up the short-term rates. This being the first make up in almost five years, it caused rather a stir.     When the Fed decides the economy is growing at too mobile a pace, or inflation is getting out of hand, it rotter take back actions t o slow spending and decrease the money supply. This corresponding with the money equivalence MV = PY, by lowering both M and V, P and Y can stabilize if they are increasing too rapidly. The Fed does this by selling securities on the open market. This, in turn, reduces banks reserves and forces the bear on rate to rise so the banks can afford to make loans. People beholding these rises in rates will tend to sell their low disport assets, in order to acquire additional money, they tend move toward high yielding accounts, also further increasing the rate. Soon this small qualifying by the Fed affects all aspects of business, from the price level to interest rates on credit cards.     Rises and falls in the interest rate can reflect many changes in an economy. When the economy is in a niche and needs a type of stimulus package, the Fed may endeavor to decrease the interest rates to encourage growth and spending in the markets. This was the case from 1989 until last month, during which the nations economy was generally considered to be in a slight to moderate recession. During this period the Fed tried to keep interest rates low to facilitate growth and spending in grievous times. However, when inflation is increasing too quickly and the economy is gaining strength, the Fed will attempt to raise rates, as it did late last March. This can be considered a sign that we are pulling out of the r... ..."slight" increase as opposed to one of " or sowhat greater" magnitude. This article is enkindle because it shows that even the Fed can be uncertain about what is outperform for the economy, but it still focuses on the power of Allen Greenspan, as well as the committee as a whole. It compares the two arguments of each method, and shows a failing in the Fed that may have been unknown to the reader before.The Wall Street Journal (Mon. April 11, 1994) - "Fed Moved Too Slow On Increasing Rates"     This recent article criticizes the Feds actions in raising the interest rate, and complains that the Fed has fallen behind in its job. It discusses the plan for a " inert" policy and what the Fed has tried to do and not do to declare this so called policy. It argues the motives and reasons for wanting a lower interest rate and compares foregone decades to todays standings. Overall it focuses deeply on the need to check inflation and if it is valid. It shows that the Fed tends to take a more conservative approach to the economy than some analysts would prefer, but that the Fed will probably continue to raise interest rates.