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  • In June 2015, The Federal Reserve announced that it would not be raising interest rates

  • because the US economy couldn’t handle the change. They also lowered their expectations

  • for the coming year in terms of economic growth. But, what does any of that mean? What is the

  • Federal Reserve, and how do they affect the economy?

  • Okay, so the Federal Reserve, orThe Fedis the US’s central bank. This means that

  • they oversee all American banks, and are the only ones allowed to issue US currency. Essentially,

  • they regulate the American economy, and that means they wield a lot of power and responsibility.

  • One of their most significant roles is changing interest rates in order to keep the US economy

  • in check.

  • The way it works is like this: The Fed is what lends money to all US banks at a certain

  • interest rate. Whatever interest rate they charge is going to correspond with the interest

  • rate your bank charges you. When interest rates are low, people borrow more and spend

  • more. This stimulates the economy. Following the 2007 financial crash, the Fed dropped

  • rates to nearly zero in the hopes that it would encourage people to spend.

  • On the other hand, when the economy is strong, people spend more, causing inflation. If the

  • rate of inflation gets too high, then prices skyrocket, and the economy crashes. So when

  • things are going a little too well, the Fed raises interest rates to keep everything on

  • track. It is by raising and lowering interest rates that the Fed tries to balance America’s

  • financial situation.

  • The Fed was originally created in 1913 as a response to the Panic of 1907. At the time,

  • private banks across the country were running out of money. In order to stop the market

  • from crashing, banker J.P Morgan took control of the banking industry and got stronger banks

  • to help out failing banks. Basically, the Fed was created to similarly regulate and

  • direct banks, and to be able to inject money into the economy when necessary.

  • But with so much responsibility, the Fed has been pointed to as a major factor in both

  • the 1933 Great Depression, and the 2007 recession. In terms of the recent housing bubble, they

  • were blamed for keeping interest rates low after a minor 2001 recession. This led to

  • low-interest borrowing across the country, and was one of the reasons people borrowed

  • money for houses they couldn’t afford. The Fed is also directly responsible for a period

  • of extreme inflation and high unemployment during the 1970s, caused by the overprinting

  • of money. Theyve also been criticized for a lack of transparency in their operations.

  • The Federal Reserve has been a common topic of contention for politicians and those unhappy

  • with the current US economy. Whether or not it should be government controlled, or even

  • exist at all are difficult questions to answer. At the very least, it’s important to consider

  • the relevant effect they have on keeping America’s economy at a steady rate of growth.

  • With such a high amount of debt to itself, banks, and foreign countriescan the US

  • still call itself a wealthy nation? Check out our video here to learn all about it.

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In June 2015, The Federal Reserve announced that it would not be raising interest rates

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