Plenty of other data factor into Fed monetary policy decisions, including gross domestic product (GDP), consumer spending and industrial production, not to mention major events like a financial crisis, a global pandemic or a massive terrorist attack. Here’s how that works: The Fed raises interest rates when the economy starts overheating-too much inflation-and cuts rates when the economy looks weak-high unemployment. Adjusting rates helps the Fed achieve conditions that satisfy their dual mandate: Keep prices stable and maximize employment. The Federal Reserve adjusts the federal funds target rate range in response to what’s happening in the economy. Understanding Fed Interest Rate Decisions Understanding why the Federal Open Market Committee (FOMC) raised the fed funds target rate in 1994 can provide insight into why it’s doing something similar today.įorbes Advisor has compiled this history as a handy guide to the course of the federal funds rate and the Federal Reserve’s monetary policy decisions over the last 30 years. This could also be said of Federal Reserve interest rate policy, although it’s a lot less entertaining than “The Million Pound Bank Note.”įor anyone who follows financial markets, it’s essential to have a good grasp on the course of the Fed’s monetary policy decisions and the reasoning behind them. Mark Twain wrote that history doesn’t repeat itself, but it often rhymes.
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