Federal Reserve Interest Rate Policies and Personal Decision Making

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Federal Reserve Interest Rate Policies and Personal Decision Making Introduction The last five years have shown that traditional monetary policies predicated on interest rate management by the Federal Reserve no longer deliver the economic growth they were once believed to. Keynesian economics has proved to not be as effective as once thought, which has led to the Federal Reserve choose alternative means to stimulate the economy and indirectly manage exchange rates (Hakkio, 1986). The uncertainty over interest rate polices has fortunately not led to increases in inflation, which has typically been the case in the past (Kopcke, 1988). The current economic conditions and the approaches the Federal Research are taking however are cause for concern, and from a personal standpoint many decisions are being evaluated more precisely. Analysis of Personal Decisions With a car that has nearly 100,000 miles on it and signs of wear, it is tempting to trade it in and purchase a new one. The many, many financing programs of the dealers are attractive, yet all contain escalation clauses and a few index to the Federal Reserve rates. This is troubling as the current economic policies don't provide a very clear cause-and-effect relationship between interest rates and economic growth. The risk of taking out any loan today is higher than in the past, especially if the loan structure is indexed to a broader measure of interest rate activity. Interest rates in many respects are barometers
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