This essay discusses the Federal Reserves.

A major factor in interest rate changes is the financial form _or_ system of government of governments. If a government loosens monetary policy, this way of life that it has printed more(prenominal) money. Simply put, the Central Bank creates more money by printing it. This makes interest rates lower, because more money is available to geters and borrowers alike. If the supply of money is lowered, this tightens monetary policy and causes interest rates to rise. Governments alter the money supply to crusade and manage our economy. The trouble is; no one is quite certain(a) how much money is necessary and how it is actually used in one case it is available. This causes economists endless debate.

Another very important factor is inflation. Investors desire to bear upon the purchasing power of their money. If inflation is laid-back and risks going higher, investors allow for need a higher interest rate to treat lending their money for more than the shortest term. After the very high inflation years of the 1970s and early 1980s, lenders had to receive a very high interest rate compared to inflation to lend their money. As inflation dropped, investors then demanded lower rates as their expectations become lower. Imagine the plight of the long-term bond investor in the high inflation period. After lending money at 5-6%, inflation moved from the 2-3% range to above 12%!



The investor was receiving 7% less than inflation, effectively reducing the investors wealth in factual terms by 7% each year.

For the sake of a quick analysis of the rates, following is an illustration of Fed Rates.

(Source: pecuniary Sense Online)

Recent Beige Report Summary

According to Beige Book (March 2004), economical activity continued to expand in January and February, (Federal Reserve soil Banks). Growth was described (variously) as moderate in Boston, Philadelphia, Cleveland, Atlanta, Chicago, St. Louis, and Kansas City,

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