Question
The responsibility of the US Federal Reserve is to monitor inflation and unemployment. Its main tool to achieve this is adjusting the interest rate it
The responsibility of the US Federal Reserve is to monitor inflation and unemployment. Its main tool to achieve this is adjusting the interest rate it charges member banks to borrow. As the economy slows, it lowers rates to encourage investment to stimulate growth; as the economy heats up and signs of inflation appear, it raises rates to dampen growth. This base rate affects all other bank rates, including the prime rate and, thus, the rate you and I pay on our mortgage. Recently, the Fed pushed rates down to "near zero percent" in response to the impact the covid-19 lockdown would have on the economy. At this point, almost $5Trillion of stimulus money has been injected into the economy, and the administration proposes more. Job availability is improving, unemployment is trending down, US GDP growth in the first quarter surged over 6%, and there is concern about inflation as prices for goods and services have surged. The outlook is unclear.
Should interest rates be increased and, if so, what effect will this have on bond prices and the stock market?
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