The Federal Reserve System acts
The Federal Reserve System acts as the US’sUS’s central bank, influencing the economy by managing inflation, maximizing employment, and stabilizing interest rates. The Fed Reserve oversees the largest US and also provides financial services to the government of the US. Its members are appointed by Congress, making it the most influential player in the US economy and the world. This paper discusses the impacts of the Federal Reserve on the US economy and the world at large.
First, the Federal Reserve’sReserve’s primary goal was to keep banks in business during the crisis by offering financial help at reduced rates. Before its creation in 1913, most banks had panicked in the 1907 financial crisis, and thus they had run out of market. However, the Federal Reserve regulates lending through changing rate policies depending on the economy’s status, especially when there is a crisis. When there is a financial crisis in the country, the Federal Reserve lowers interest rates to encourage more people to take up loans and grants to revive US businesses and increase cash flows, elevating the country’s economy. After the 2008 global financial crisis, the Federal Reserve decided to reduce interest rates to a near zero for the next six years to elevate the US economy from the worse financial problems. This significantly led to increased borrowing by companies and business people to revive businesses that would otherwise die, worsening the situation.
Furthermore, reducing interest rates is also associated with high employment rates in the country as companies require more employees to perform business-related duties. A high employment rate is one of the significant indicators of a thriving economy, and thus it must be ensured. During economic difficulties such as the 2008 financial crisis, many people lose their jobs, and they are left without any source of income. As a result, increasing the employment rate remains one of the primary goals of maintaining interest rates near zero. When an economy stabilizes, many businesses and individuals do not want to take loans. Thus the Federal Reserve increases interest rates so that people who take loans will pay more. This is because they can pay the higher rates. After all, the economy is thriving, and they will likely recover the loan more quickly.