So I found this really neat article on FOX Business: http://www.foxbusiness.com/economy-policy/2015/03/16/fed-rate-hike-how-far-more-important-than-when/?intcmp=ob_homepage_business&intcmp=obnetwork
This is probably one of my favorite parts of econ to study; The Fed and how they control the money. It’s really interesting to read that interest rates from The Fed have been near zero since the recession. In the article they discuss how they are going to be increasing the interest rate for the money that Fed loans to other banks. Lately though, even though the interest rate is low, banks still aren’t loaning out money very easily it seems. They are just building up very larger reserves way way above the required amount. This increased interest rate is going to make it more expensive for consumers and businesses to borrow, but it will be a good thing.
With the interest rates as low as they are now, it doesn’t leave Fed much room to adjust so the economy is very vulnerable. Typically in times of high inflation, the Fed will lower interest rates to bring inflation down to a more normal level. But if its near zero already, they have no room to bring it down. So it could be very problematic in the long run if they leave the interest rates that low.
At least that’s my understanding of that works, correct me if I’m wrong please! Hope you all enjoy the article 🙂