The Federal Reserve is widely expected to cut interest rates at its meeting this week with policymakers signaling a need to provide more support to an economy that is facing significant headwinds.
The central bank has been under pressure to act after data showed that economic growth slowed in the second quarter and inflation remains below the Fed’s target level. President Donald Trump has also been a vocal critic of the Fed’s policies calling for lower rates in an effort to boost economic growth.
While the Fed is not expected to announce a rate cut at its meeting on Wednesday it is widely expected to do so at its next meeting in September. Policymakers could also signal their intention to cut rates at this week’s meeting which would provide more clarity on the central bank’s plans.
The Fed has cut rates twice this year in March and July in an effort to provide more support to the economy. However those cuts have not been enough to boost economic growth or inflation to the levels that the central bank would like to see.
With the economy facing headwinds from trade tensions and slowing global growth the Fed is expected to provide more support through lower interest rates. This would provide a boost to economic activity and help to raise inflation back to the Fed’s target level.
The Fed’s decision on interest rates this week could have a significant impact on the markets and the economy. A rate cut would lower borrowing costs for businesses and consumers and could help to boost economic growth. However it could also lead to higher inflation in the long run.
What is the Federal Reserve’s target for the federal funds rate?
2.
25% to 2.
50%
What is the current federal funds rate?
2.
50%
When was the last time the Federal Reserve lowered the federal funds rate?
July 31 2019
What is the Federal Reserve’s primary monetary policy tool?
The federal funds rate
What is the main way the Federal Reserve influences the economy?
By setting the federal funds rate
What are the other two tools the Federal Reserve uses to influence the economy?
Open market operations and reserve requirements
What is the difference between the federal funds rate and the discount rate?
The discount rate is the rate at which the Federal Reserve lends to banks while the federal funds rate is the rate at which banks lend to each other.
What is the Federal Reserve’s goal for inflation?
2%
What is the Federal Reserve’s goal for economic growth?
2%
What is the Federal Reserve’s dual mandate?
To promote maximum employment and price stability
What is full employment?
An economic state in which all available workers are employed
What is the natural rate of unemployment?
The unemployment rate that occurs when the economy is at full employment
What is inflation?
A sustained increase in the price level
What is deflation?
A sustained decrease in the price level
What is stagflation?
A period of high inflation and high unemployment
