AP Econ Blog
FED’s Monetary Policy MeetingOn 5/2/2018 the FED will be holding one of its 8 yearly meetings to discuss how to move forward with the economy in terms of monetary policy and what they should change before the next meeting which occurs in June. Your average American would say the small changes they may make are irrelevant and in turn just ignore the fact that it occurs, however, as you will learn by reading there really is a lot to it. In this meeting, the FED can lower, raise or maintain the federal funds rate based on how they see fit.The FED prefers keeping the Federal Funds Rate at between 2 and 5 percent as this indicates a healthy economy. In this range, the GDP grows while also keeping unemployment where it should be naturally, at around 5% as well as keeping inflation rates at or below the target of 2%.So as you can tell, they historically play changes pretty close to the chest, however, there have been times in the past that they have decided the necessary move is a drastic change. For example, in 1979, to combat double-digit inflation rates the federal funds rate was raised 20% leaving it at an all-time high. On the other end of the spectrum, the lowest mark ever was in 2008 to combat recession as the federal funds rate dropped all the way down to 0.25%. While of course since America is currently neither in a recession or experiencing extreme inflation, we can expect much smaller changes than that in this months meeting.
The impact of this meeting reaches wide as it hasn’t even happened yet and we have already seen change stem from it. Because economists believe the FED is going to be raising interest rates, investors have all been recently on a scramble to invest in the U.S. dollar as to benefit from this increase. Do to this the U.S. dollar has surged up in worth, gaining half a percent on the rate between it and the euro as well as reaching key levels on the Australian dollar, Swedish crown, Swiss franc, British pound and other emerging currencies. Now, I’m not an economist, but the topics regarding this meeting that I have discussed as well as the many others I’m sure someone more qualified could tell you, I believe it is pretty clear these meetings are important and carry a lot of weight.
Works CitedAmadeo, Kimberly. “Highest and Lowest Interest Rates and Why They Changed.” The Balance, www.thebalance.com/fed-funds-rate-history-highs-lows-3306135.
CNBC. “FOREX-Dollar Roars into Positive Territory for 2018 before Fed Meeting.” CNBC, CNBC, 1 May 2018, www.cnbc.com/2018/05/01/reuters-america-forex-dollar-roars-into-positive-territory-for-2018-before-fed-meeting.html.