Why Does The Fed Increase Interest Rates

The Federal Reserve typically increases interest rates in order to control inflation. By raising rates the Fed makes it more expensive for businesses to borrow money which can help keep inflation in check. Additionally higher interest rates can help cool off an economy that’s growing too quickly.

Of course there are other factors that the Fed takes into consideration when making its decision to alter interest rates. For example the unemployment rate is one important metric that the central bank watches. If the jobless rate is low that could signal that inflation is on the horizon.

The Fed also assesses the risk of financial bubbles. If asset prices are rising too quickly that could create an economic bubble that eventually pops and leads to a recession.

Ultimately the Federal Reserve’s goal is to maintain stability in the economy. By raising or lowering interest rates the central bank can help keep inflation in check prevent financial bubbles and encourage sustainable economic growth.

See also  Why Is Batman Arkham Knight Rated M

Leave a Comment