ACTV - Why The Fed Will Likely Be Forced To Cut Rates Before Inflation Goals Are Met
2024-05-07 01:28:42 ET
Summary
- The Federal Reserve uses the Federal Funds Rate to manage inflation by influencing borrowing and reducing demand for loans.
- Higher interest rates result in increased interest expenses for the overall economy.
- The US has a debt to GDP ratio of about 3.5x, and if the entire debt were lent at the Prime Rate, the interest expense would be about 29.9% of GDP.
The Federal Reserve has as one of its main tools to manage the rate of inflation the Federal Funds Rate. The purpose of this tool is to either entice borrowers to borrow if they make the interest rate low, or to reduce demand for borrowers if they make the cost of money high. When the Fed is trying to lower inflation, the end goal is to reduce the rate of growth in the aggregate amount of debt outstanding. Since we have a debt based money system, inflation that comes from monetary growth is simply the rate of growth in aggregate debt per capita....
Why The Fed Will Likely Be Forced To Cut Rates Before Inflation Goals Are Met