Essay on Role of Federal Rate in Economics

The Federal Reserve Board is a regulating body that determines how United States will lend money by coordinating the banks and defining the value of the dollar. A Governor on the Federal Reserve board communicates with the twelve region 's bank presidents, economic analysts, and their regional directors, and collectively define the dollar by selling long-term and short-term bonds that advance a percentage of the worth. Once an agreement has been made upon fraction percentage, banks are required to maintain that stated amount in a Federal Reserve vault, or the bank’s vault. The Federal Reserve loans temporary funds to the banks that do not meet the reserve requirement in the form of a short term loan, usually overnight. A large amount of the Federal Reserve Board’s time is spent discussing fractions of a percent on specific money-related rates which steers the economy.

The Federal Reserve increases its reserves by issuing loans to a commercial banking system. This allows the bank that is borrowing reserves to disburse credits to the public. The Federal Reserve Banks offer primary credit, secondary credit, and seasonal credit, to bank organizations each with its own interest rate. Depending on if the Fed wants to decrease or increase the interest rate can be a positive or negative effect to the public. If the rate is decreases it encourages banking organizations to get more loans. When this is done the banks acquire more funds and are able to disburse more loans the people.

The Federal Reserve (FED) is the central bank of the United States. One of its purposes is to set interest rates at which banks lend each other money and another interest rate by which banks borrow money directly from the Fed ("How Interest Rates Work."). The interest rates set by the Fed affect the borrowing, the lending, and by extension the economy of the country. Any changes in the interest rates at which banks borrow money from the Fed will influence the country’s economy. Thus, the higher the interest rate, the lower loans are demanded. Consequently, due to this mechanism, the lower the interest rates, the higher the growth of the economy ("How Interest Rates Work."). When the Fed goes down interest rates, banks can borrow money for less.

The Fed formerly known as The Federal Reserve was created in 1913 by the U.S. Congress, to provide structure over the world’s largest economy. The Fed controls money supply, sets interests rates, regulates banks, and ensures the safety of, and the credibility of the financial system. The Fed formulated a method that created liquidity in the money supply, which in turn, made sure banks could honor withdrawals for customers. The Fed’s system made currency more elastic and credit more adequate, meaning it had to control inflation by making sure prices didn’t rise too quickly. It also needed a way of increasing or decreasing the country’s supply of currency in order to prevent inflation and recession

While this sounds simplistic, the federal funds rate actually affects a variety of economic factors. According to the website, the federal funds rate impacts both short- and long-term interest rates, money supply and credit, which eventually leads to changes in employment, inflation, and output (www.federalreserve.gov/monetary policy/fomc). Traditionally, the economy responds to adjustments to these factors; however, in the case of more severe economic difficulties, it may take longer for implementation of these tools to take the intended effect.

For this assignment I picked “the role of the Federal Reserve” a mere recital of the economic policies of government all over the world is calculated to cause any serious student of economics to throw up his hands in despair (pg, 74). The Federal Reserve is now in the business of enforcing the United States government’s drug laws, even if that means making a mockery of both state governments’ right to set their drug policies and the Fed’s governing statutes. A Federal Reserve official who played a key role in the government 's response to the 2008 financial crisis says the government should do more to prevent a repeat of that crisis and should consider whether the nation 's biggest banks need to be broken up. Neel Kashkari says he believes the most major banks still continue to pose a "significant, ongoing" economic risk. The next ten years will see an explosion of government debt and an implosion of government’s ability to fulfill its promises. Any economic or investment model based on past performance under previous economic conditions will be worthless just as useless as the Federal Reserve’s models.

The federal reserve system creates economic growth and stability. Janet Yellen, Chair of the Board of Governors of the Federal Reserve System, stated in a speech at the World Affairs Council of Philadelphia saying, “[The] Federal Reserve's goal [is] of maximum employment and price stability, and, as I will explain, there are good reasons to expect that we will advance further toward those goals.” This being said, fluctuations in the interest rate causes adverse condition. When the interest rate goes down, it increases the money supply by making money less expensive, which allows member banks to borrow more money. When the interest rate goes up it decreases the money supply by making money more expensive, which in turn discourages borrowing and spending, slowing down the economy. Continual rate changes affect the entire economy. High interest rates causes the government to be limited in creating programs without the aid of the federal reserve. During the financial crisis, the Federal Reserve established several facilities to provide liquidity directly to borrowers and investors in key credit markets. As the production of financial markets enhanced, the Federal Reserve eased down these programs. In the attempt to dispense entrance to short-term debt funding, the Federal Reserve System effectuate a variety of crisis management

The Federal Funds Rate is arguably the most important interest rate in the world as it sets the tone in the market. This is the overnight interest rate used when banks borrow money from other banks or from the Federal Reserve. (Miller, 2016) If they do not have enough on hand to lend out, the Federal Reserve would be a place where banks can borrow money overnight. The rate is a tool used by the Fed to control the supply of available money therefore controlling inflation and other interest rates. (Fed Funds Rate: Definition, Impact and How it Works, n.d.) The higher the rate the more it costs to borrow money which lowers the supply of money. The lower the rate the less it costs to borrow which increases the supply of money. While it may seem natural that a very

After the Revolutionary War, many of the country’s citizens were in great debit and there was widespread economic disruption. The country was in need of an economic overhaul and the new country’s leaders would need to decide how to do this to ensure the new country did not fall apart. After two unsuccessful attempts at a national banking system, the Federal Reserve System was created by the Federal Reserve Act of 1913. Since its inception, the Federal Reserve System has evolved into a central banking system that grows with the country. The Federal Reserve System provides this country with a central bank that is able to pursue consistent monetary policies. My goal in this paper is to help the reader to understand why the Federal

The Gross Domestic Product (GDP) is a calculation that provides insight into the current economy of our nation to allow individuals to understand the current and past year’s standings in the economy. The calculation of the GDP allows for the government to determine what adjustments are necessary to manage an effective status for the economy. Based upon the GDP the government can forecast any necessary changes that must be made to either the monetary policy or the fiscal policy. The wealth of a country is based upon the government’s ability to manage the economy through the monetary system and not on the amount of money that is located within that economy. The calculations for the GDP are produced to provide the most

The Fed was originally created to prevent the supply of money and credit from dissipating. In the United States today the Fed controls monetary policy. Monetary policy is the process by which the monetary authority of a country, controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability (Unknown). When the United States is smitten-ed by debt the Fed has the ability to lower interest rates. When interests rates are lowered, it encourages people to acquire loans and make acquisitions. The short run effect of this cycle can be positive, the long run may not be as positive. When handled erroneously the long run of inflation will be negative. In the short run when people secure loans, the loan enables the person purchasing power, which may help their finances. If the individual receiving a loan does not financially dispense their loan wisely, that individual can be in a arduous financial problem. A dire financial problem can be the possibility of becoming bankrupt, which leaves the person in a situation that is extremely difficult to over come.

The Federal Reserve System was founded by Congress in 1913 to be the central bank of the United States. The Federal Reserve System was founded to be a safer, more flexible, and more stable monetary financial system. Over the years, the role of the Federal Reserve Board and its influence on banking and the economy has increased. Today, the Federal Reserve System's duties fall into four general categories. Firstly, the FED conducts the nation's monetary policy. The FED controls the monetary policy by influencing credit conditions in the economy. The FED measures its success in accomplishing these goals by judging whether or not the economy is at full employment and whether or not prices are stable. Not only

According to M:Business, the Fed serves as “the guardian of the American financial system” (Ferrell, Hirt, Ferrell, 2015, p.317). The Fed was established as a means to regulate financial and banking industries. Through this regulation, the Fed is attempting to promote a positive economic atmosphere that includes low unemployment and low levels of inflation. Our business book notes that The Federal Reserve Board has 4 major responsibilities, these include “ (1) to control the supply of money, or monetary policy; (2) to regulate banks and other financial institutions; (3) to manage regional and national checking account procedures, or check clearing; and (4) to supervise the federal insurance deposit programs of banks belonging to the Federal Reserve System” (Ferrell, Hirt, Ferrell, 2015, p. 318). As mentioned above, The Fed uses monetary policy to attempt to control the supply of money available at any one time. In order to accomplish this, the Fed employs four different strategies; these include open market operations, the discount rate, reserve requirements, and credit controls. The most commonly used strategy, open market operations, deals with the decision to buy or sell government securities in the open market. In certain instances when the Fed believes that the amount of money in circulation is too great, they will offer these securities for sale and through the sale of these securities decrease the

What the world needs now is Money Sweet Money"; that is not the way the song goes however that is surely the way our world and economy does. Money and its importance relative to the US Government have always been difficult to figure out especially when it comes to interest rates. Due to our Federal Reserve System, its chairman Alan Greenspan, and his Board of Governors dedicated to seeing that our economy blossoms, those doubts have become a thing of the past, for now.

The Federal Funds Rate plays a huge role on the state of the economy in the United States. For something that has such impact on the whole economy in the United States, it is very little known and understood. The Federal Funds Rate may be the most important rate in the country. So what is the Federal Funds Rate? It is an interest rate that is used when banks lend to other banks or other depository institutions from “funds that are maintained at the Federal Reserve” (Target Rate). The transaction can only be done overnight and by trustworthy institutions. The target rate is determined by the Federal Open Market Committee (Target Rate). They will influence and determine the rate that will be used. So if it doesn’t have any first hand impact on a normal consumer or business, why should anyone care about it? The answer to that is simple, the Federal Funds Rate will greatly impact the economy in several areas and it will trickle down onto the normal consumer and business. The Federal Funds Rate will change the economy if it goes up, and if it goes down. As the year runs down, everyone will be watching with a close eye to see what the Fed will do with the rate. The Federal Funds Rate will increase in December of 2016.