Federal Reserve
The federal reserve meets twice a year to demonstrate to the president, how the money supply is within
the economy.
The federal reserve can look at the money supply within the economy, and decide if money needs to be
pump within the economy or decide if the money must be taken out of the economy.
When the economy is stable, they can slowly start to increase inflation and interest rates. Slowly bring
money out of the economy.
If inflation starts to raise quickly, quicker than they expected. The federal reserve will want to tighten the
money supply within the economy.
The president has more control over interest rates, rather than the federal reserve. The federal reserve
controls the money supply within the economy. The president should consider very carefully before
interest rates reach a remarkable level. If the federal reserve tightens the money supply, interest rates
will increase. If the interest rates do reach a remarkable level, it can be an indication the economy is
heading for a recession.
The federal reserve can stabilize the economy by printing more money into the economy, this will
encourage economic growth and push the economy forward. But what happens when the economy is
growing far too quickly? The federal reserve will decrease the money supply but using the interest rates
and inflation. There can be few implications for the economy. Interest rates can rise significantly much
quicker than expected which is a huge implication for the economy.
When inflation and interest rates are rising this will have an impact on banks’ balance sheets.
For the federal reserve not to push the economy into recession with interest rates. The process that the
federal reserve will have to encourage is economic growth and stable rates, but if interest rates rise to
quickly it can push the economy back into a recession. The federal reserve will have to be sensitive to
interest rates when the rise comes. So, for example, with injection of money into the economy which is
used to stabilize the economy and interest rates will have to increase in due course. Today, United
Kingdom interest rate is 0.5 percent. The federal reserve will slowly increase interest rates, so the
financial markets do not collapse into another recession. Increasing interest rates slowly should stabilize
the economy and markets, increasing interest rates quickly will result in bigger financial collapse rather
than increasing it slowly. With increasing interest rates slowly, the markets will have time to recover
compared to a huge interest rates increase.
