In your responses, comment on at least two posts from your peers. Compare and contrast your thoughts about monetary policies. Research current levels of the federal funds rate, inflation, and unemployment and make recommendations on monetary policy actions that would help maintain economic stability.

Changes in the federal funds rate can impact the unemployment rate significantly. When the Federal Reserve opts to increase the federal funds rate, borrowing costs for banks elevate. Consequently, banks may adjust by raising interest rates on loans extended to consumers and businesses. This uptick in borrowing costs tends to curtail consumer spending and deter business investments. Consequently, with higher rates, businesses may scale back hiring or even resort to job cuts, thereby elevating the unemployment rate due to a shortage of available jobs. On the other hand, lower rates can have the opposite effect, stimulating borrowing among consumers and businesses, allowing for more investments and expansions, which in turn generates more job opportunities. As Mankiw (2021) notes, the Federal Reserve plays a pivotal role in managing the money supply.

Changes to the federal funds rate wield considerable influence over the inflation rate, particularly concerning borrowing and investments. Higher rates discourage investment and borrowing for significant purchases like homes and cars, leading to less demand for goods and services, which contributes to lower inflation. On the other hand, lower rates stimulate increased borrowing, which in turn heightens demand and lowers supply, creating prices to rise and contributing to inflation.