The Federal Reserve Essay
The recent interest rate changes made by the Federal Reserve aimed at the revival of the national economy but, in actuality, they have little positive effect. At any rate, I, in person, feel a few positive changes after the drop of the interest rate set by the Fed to the level close to zero. Therefore, the recent interest rate change made by the Fed had little positive effect on my life and I have to save more than I used to and refuse from purchases I would eager to make.
In fact, recent changes being made by the Fed in regard to interest rates aimed at the revival of the national economy and stimulation of business activities. The decrease of interest rates of the Fed normally stimulates business activities because the drop of the Fed’s interest rates makes loans cheaper for the population and business. As people and business can take bank loans, they can invest more in the business development, while people can spend more on their needs. In actuality, the Fed has decreased the level of interest rate to the unparalleled low level. However, this measure has little positive effects on the national economy. At any rate, I still have limited opportunities to loan money because the stagnation in the housing market carries on and so does the situation in the national economy at large. I am still uncertain in the further economic development of the US and I am not willing to take bank loans right now because I cannot be certain that I will be able to pay them off in the future. Therefore, I prefer saving instead of spending, even though if I have to refuse from certain purchases and cut my spending consistently.
Furthermore, financial markets are still unstable, while business activities are low that also discourages me to spend more than I used to in the course of the economic recession. The current record-breaking low interest rate set by the Fed seems to be like a desperate step that makes me anxious about the further development of the US economy and financial markets. This uncertainty affects not only my buying habits and my financial operations but also business development at large. I believe that business is as anxious as I am. In addition, the low interest rate established by the Fed in the beginning of the economic recession, which decreased steadily step by step, failed to bring positive changes that made the business pessimistic and forced average citizens like me to focus on saving instead of spending.
Finally, the inflation increased consistently and this is the direct effect of the drop of the interest rate by the Fed because, as the Fed decreases its interest rate the Fed makes loans cheaper. Banks can use more money and offer cheaper loans that lead to the increase of the money mass in the economy. The increase of the money mass leads to the devaluation of products and services, especially if the increase of the money mass is not backed up by the increase of the production of goods and services as is the case of the US economy at the moment.
Thus, the recent interest rate change made by the Fed fails to bring positive changes in the national economy and stimulates me to focus on saving and to refuse from many purchases I would like to make.
