Analyze the different scenarios given below

a)As I am answering before 2:00 on Wednesday, The Federal reserve had not yet made a decision. I believe that the FOMC of the Federal Reserve should not raise interest rates at their meeting this week. By raising interest rates, it does an attempt to hinder spending and borrowing. The people that benefit from higher rates are mostly banks since they are the ones lending out money with a high interest rate meaning more money for them. By making borrowing money (loans) more expensive, I think of those who come from lower income communities that are currently taking out loans to attend college/university. The higher interest rates also affect the job market, making those who are unemployed stay unemployed. It makes the already highly competitive job market worse. Although I only focused on students/people that come from lower income communities, I think we are the ones that need to be considered when making decisions like this. The United States isn't just made up of investors and wealthy people to not take people that are less fortunate into account.

b) The Federal Reserve should lower interest rates, or at least keep the interest rates as low as the current state of the economy lets them. The only thing that raising the interest rate seems to do is make things harder for people that aren't already employed and have a good economic standing. I understand that one of the goals of raising interest rates is to slow down spending and as the situation is now, result in a soft landing for the economy. This doesn't mean inflation just magically goes away, it goes back to "normal" and "no recession" as stated in the May 2023 Fed Preview in the news article folder. They've raised interest rates 9 times over the past fourteen months with what prevails exactly? If they can keep interest rates low, they can promote job creation that can lead to better job opportunities that can benefit people that don't already have jobs.

c)I think the federal government should take note of what Europe is doing, at least in terms of keeping people that don't come from an economically stable background in mind when making their decisions. In the article about how Europe is handling interest rates in the News Article Folder, it states. " Inflation is a tax, in particular on the poor, and that needs to be tackled." They decided to raise interest rates to avoid particularly high inflation. If higher interest rates slow down economic growth/ spending it could directly lead to a recession. This is why I explained prior how low interest rates could combat different things, in this case it is a recession.

d) I don't see the national debt as it stands now to be sustainable, and the possibility of default on its debt is foreseeable. If we end up defaulting on the debt, it only brings more trouble. It seems reasonable that if the U.S is so close to reaching the debt ceiling, raising the debt ceiling could provide some breathing room. Although we have never defaulted on our debt, we have come very close to it. Changes should be made to the spending of the government. I personally believe that the government could spend less money on the military as it is a large portion of government spending that goes into the military which I believe doesn't entirely need all of the funding that it does receive. If the US defaults and is unable to make payments of the national debt it only leads to more problems. The raising of the debt ceiling is merely a temporary fix to the larger issue.

Answer rating: 100% (QA)

Analysis of Different Scenarios on Federal Reserve and Economic Policies a Opposition to Raising Interest Rates The argument against raising interest ... View the full answer