Tujak-Weiss, Huerta1
Franki Tujak-Weiss, Leididayana Huerta
Professor Marks
Principle of Economics 1
December 5, 2016
Federal Reserve Decision
On December 14, 2016, the Federal Reserve will meet to discuss and make a decision that will affect interest rates and the economy. Based on research, the prediction is that the Federal Reserve will hike up the fed funds rate by .25%. If the Federal Reserve does increase rates, then it must add securities to the bank reserves and decrease credit. If the rates are increased, the Reserve will do the same to the interest rates it pays on required reserves, excess reserves, and reverse repos. In general, by raising the interest rates, the Federal Reserve will seek to reduce inflation, maintain unemployment at a steady rate,between 4 and 5 percent, and appreciate the dollar.
Donald Trump’s victory has left the Federal Reserve with new uncertainties for their well-crafted plan to advance interest rates from historically low levels. Trump’s proposals to decrease taxes, boost infrastructure, and renegotiate international trade agreements have the Federal Reserve in distress. According to some economists, these plans are estimatedto elevate the already soaring United States budget deficit.
After further research into presidential candidate Donald Trump’s plan regarding the Federal Reserve, we came to a unanimous agreeance. While we predict that interest rates will increase, we furthermore anticipate it as a positive outcome for the economy. However, we do presume the rates should be elevated gradually instead of aggressively, as Donald Trump demands.His proposals are causing the Federal Reserve’s high tensions because this may lead big businesses, companies, banks, etc. to discontinue investment and from fear of depletion. The Committee for Responsible Budget has mentioned theRepublican nominee’s plans for reducing taxes, investing in infrastructure, raising federal funds, and rebuilding international trade have made it difficult for the committee to evaluate the future of the economy. The estimated costs are estimated to add $5.3 trillion to the federal debt over the next 10 years.
Economists worry as to what the implications would be on the economy if the rates are increased as drastically as Trump proposes should he win the presidential election. Concerns rise over whether another recession will happen, similarly to the recession in 2008, when President Obama won the election. To avoid hitting another recession, economists alongside the Federal Reserve are drawing possible solutions to assist the economy. If another recession occurs, currency’s circulation will decrease, investments will decline, and a sense of fear will instill upon the fate of the economy.
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