Question

In July 2019 the Federal Reserve lowered interest rates for the first time in a decade. The Federal Reserve has two missions: to keep unemployment low and to keep inflation low. To reduce the unemployment rate, it cuts rates to increase the money supply and increase aggregate demand. To reduce inflation the Fed raises interest rates to decrease the money supply and tamp down aggregate demand. Right now the unemployment rate is at a 50-year low and inflation is below 2%. Why would the Fed cut rates now? Check out Federal Reserve Chairman Jerome Powell's explanation of the thinking behind this decision. What are the reasons he gave? Which makes the most sense to you, based on what we're studying about monetary policy?

Answer 1

Jerome powell looks to cut interest rates to growthe economic outlook and stabilise real GDP and be concurrent with expansionary fiscal policy by government.

His decisions of cutting interest rates makes more sense as inflation can be widneed slightly in lieu of higher economic growth and thus can achieve better economic recovery from slowdown past three years.

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