US Federal Reserve: America is the largest country in the world in terms of economy, with a GDP of $30.507 trillion dollars. Meanwhile, the US central banking institution, the Federal Reserve, has announced that it will once again cut interest rates. After this cut, the prime rate now stands at 3.9 percent, up from 4.1 percent earlier. The decision came amid a shutdown of the US economy and a slowdown in job growth. However, the Fed said the move was necessary to spur economic growth and create jobs.
Federal Reserve Chairman Jerome Powell said the government shutdown had certainly had an impact on economic activity, but the impact would not be permanent, announcing the rate cut. He said official figures on employment and inflation were not released due to government shutdown. Because of this, the Fed currently has to rely on economic forecasts from private firms.
The reason for the reduction in rates is the decline in employment and the pace of inflation
The Fed has raised interest rates to 5.3 percent over the past two years to control inflation. Meanwhile, job growth has slowed and new job openings are shrinking. Consumer spending is down. The inflation rate now hovers around 3 percent, well above the Fed’s target of 2 percent. However, Powell said the focus will now be on economic growth and increasing employment, as too tight a monetary policy can have a negative impact on the market.
How about the American people? Will there be an impact on the world?
This decision by the Federal Reserve is expected to bring relief to the common American citizens. Loan installments will become cheaper, interest rates for buying houses and cars will come down. Getting business loans is easy. However, interest on savings accounts is likely to be reduced. This action is also important at the global level. Dollar may weaken due to low US rates. This is likely to increase investments in Asian countries including India.
The government shutdown has become a major challenge
All this is the result of the budget dispute between the federal government and the congress going on in the United States. Lakhs of government employees are without salary. Many departments have stopped working. Powell said the unavailability of government statistics made it difficult to determine the Fed’s policy. Because of this, the decision to cut the rate at the next meeting in December will depend on the circumstances.
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