Summary:
The entirety of the article linked is basically in the title: the Federal Reserve is going to leave interest rates as they are
despite a future possible rise in inflation. The New York Times article offers a more in-depth analysis of these ideas
touched on in the ABC News article.
Analysis:
In class, we learned about the Federal Reserve’s purpose and the power it has over the economy. The maintaining of the
interest rates reflects well on the economy since consistent rates mirrors a consistent economy. Analysts claim that rates
are due to rise, however, in order to discourage people from borrowing. This discouraging then lessens the
amount of money in circulation, causing the economy to grow slower. The Federal Reserve, therefore, has to closely
gauge the economy in the near future and try to prevent a recession.
Questions:
1) Based on this information on future interest rates, will you alter the way you spend your money? How?
2) Nearing entrance into the workforce, do you think you will monitor Federal Reserve activity more or less than you do now? Why?
Sources:
5 comments:
Because the economy can be very volatile, I would probably watch the interest rates of the Fed to see whether they increase, decrease, or do nothing to the interest rates. I would try to stay safe economically by spending wisely during an increase or decrease in interest rates. An increase in interest rates would mean that inflation rates are high, so I would try to spend less in order to conserve money. A lower interest rate would mean that money is not being circulated enough throughout the economy. Thus, I would try to spend a healthy amount of money to stimulate the economy.
I definitely will monitor the Federal Reserve's activity a little more closely now as they also have a huge effect on all bank's interest rates as well. Though I don't think that their activity will drastically affect the amount I spend or save at any given time, I think it is still useful to know how the economy is doing and when to buy bonds as well.
I will also watch the interest rates of the Fed to see what happens to the interest rates; however, I will not change the way I spend my money because a small increase in rates will not affect the way I spend. It is just insignificant. The economy should not control the way you spend your money. You should control it yourself.
The Fed's actions are closely linked to the success of the economy, or rather the projected success of the economy. If the Fed is increasing the interest rates, I would expect that inflation is projected to increase, and anticipate a corresponding economic shift. Beyond the effect it will have on my government bonds, I imagine my spending habits won't change very much.
I will not change my spending habits because I am a saver and usually invest some portion of my capital so that it is not just sitting in a bank exposed to higher inflation rates. Unless interest rates skyrocket to 16% it is not something I will consciously take into account when I go out and spend unless I am taking out a loan/ want to get a mortgage.
I am not a normal American consumer so I can't say I speak for everyone since I believe I heard 40% of Americans have less than $5000 in savings/ emergency funds, which is pretty depressing.
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