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What are the economic policies and regulations affecting interest rates in the US?

Samira Meriet

As a user of a social network, it’s safe to say that discussing economic policies and regulations affecting interest rates in the US isn’t something I venture into on a daily basis. However, upon delving into the topic, it became clear that the matter is incredibly significant and far-reaching, affecting people’s lives in ways they may not even realize.

Firstly, it’s worth noting that interest rates are the rates at which financial institutions lend or borrow money. Therefore, when the Federal Reserve, the US central bank, sets interest rates, it plays a significant role in influencing the economy. The Federal Reserve has two main policy tools for controlling interest rates: open market operations and setting the federal funds rate.

Open market operations involve the buying and selling of government securities, which impacts the amount of money banks have on hand and consequently, their willingness to lend. Lowering interest rates by buying securities is a tactic the Fed may use to encourage borrowing, spending, investment, and growth, whereas selling securities may raise interest rates and contain inflation.

The federal funds rate, on the other hand, is the rate at which banks and credit unions lend to each other overnight to meet reserve requirements. The federal funds rate is influenced by movements in the money supply, economic indicators such as inflation and unemployment, and global economic trends.

The current economic policies and regulations affecting interest rates in the US are subject to recent fluctuations. In 2020, due to the COVID-19 pandemic, the Fed has attempted to keep interest rates low to provide stability to a rapidly declining economy. Additionally, the Fed engaged in several emergency lending actions, and Congress passed a series of stimulus measures in 2020 to support individuals and businesses impacted by the pandemic.

However, as the US moves forward in 2021 and beyond, there are several economic policies and regulations that could significantly impact interest rates.

Firstly, there’s the potential for inflation. As the economy rebounds, there may be pent-up demand for goods and services that could spur price increases. The Fed has a stated goal of keeping inflation at a stable 2% rate- any increase above that could cause the Fed to raise interest rates to combat inflation.

Secondly, with a new President in office, the economic policies of the US government will have a significant influence on how the economy and interest rates behave. The Biden administration has already enacted several economic policies to address the pandemic's economic fallout, including the planned $1.9 trillion American Rescue Plan.

Thirdly, worldwide trends will continue to have substantial effects on the US economy and interest rates. For example, Brexit, trade deals, and shifts in China’s economic policies and practices could all impact the US economy's performance and consequently, interest rates.

In conclusion, the economic policies and regulations that influence interest rates in the US are numerous, complex, and ever-changing. However, it’s crucial to understand how interest rates impact our daily lives and the wider economy, and to keep an eye on these policies as they evolve over time.