Source link Today, the Federal Reserve announced that in response to a reduced inflation rate, it will be raising interest rates by a smaller margin than originally expected.
The lowered inflation rate, which measures the rate of increases in prices for goods and services, was cited as a primary reason for the revised margin. The mandate for raising rates is to reduce inflation and it is the Fed’s belief that current inflation levels possess a minimal threat of overheating the economy. It is therefore unnecessary to reduce inflation by enacting a more extreme increase in borrowing costs.
In order to reduce inflation, many monetary policy institutions around the world have implemented a stronger stance on tighter monetary policy. The result of these policies has been a slower growth rate in most economies. In the US, inflation had been held in check and the given rate of growth over the past three years had been low. The rate of inflation is now believed to have receded further.
The decision to reduce the level of rate increase is seen as a positive sign for the economy. It does not signal a worrisome economic situation but rather a cautious approach to fiscal policy that is favored by many economists.
The Fed will raise the rate from its current 1.75-2 percent to a rate of 2.00-2.25 percent. This is the seventh interest rate increase since December 2015 and is the lowest rate increase in over two years.
The reactions from experts were largely in favor for the decision. Many noted the decision as prudent and responsible. Some economists, however, remain concerned that a smaller rate increase could indicate worsening economic conditions than may previously have been thought.
The Federal Reserve Board of Governors meets every six weeks to review economic conditions and discuss potential policy changes. Therefore, even though the interest rate increase in this case was smaller than expected, it is entirely possible that the Fed could change course and raise the rate further at a later date if the situation necessitates it.
