Key Points
- Federal Reserve is the central bank of the United States also known as the Orchestrator of the economy.
- The other name for Federal Reserve Interest Rate is the federal funds rate.
- In March the federal has started to increase the rates by 0.25%.
- A record of changes in the federal interest rates has been given below from the year 2015 to 2022.
- The Federal Reserve increases and decreases the federal reserve interest rates based on the situation in the economy to run it smoothly in long run.
What is the Federal Reserve?
The Federal Reserve is one of the most complicated financial institutions in the world. It is the central bank of the United States. It is called the Orchestrator of the largest economy in the world. It determines the costs being charged to businesses and customers while borrowing money.
Low borrowing costs might make the difference between a company opting to make new investments or recruiting additional employees. However, high prices may discourage both consumers and corporations from making large-ticket purchases.
Federal Reserve Interest Rate:
The Federal Reserve Interest rate is also known as the federal funds rate. It is the interest rate based on which the banks and other credit-providing institutions borrow and lend funds to each other. These rates are specified by the Federal Reserve and can be altered at any time.
If there are any changes made in these rates, it will directly affect the customers as it can affect rates of interest charged on credit cards, loans, and saving accounts. Therefore, it is a significant piece of equipment for the maintenance of the economy.
The Current Status of Federal Reserve Interest Rate?
As of 2nd November 2022, the current Federal Reserve Interest rate ranges from 3.75% to 4.25%. The fourth continuous rate hike of this year is 0.75%. There was so much struggle for the federal government in reducing inflation. According to the United States department, previously, the rate of inflation was 8.2% but it raised to 8.3% in September of 2022. A recent report stated that the Fed has a great commitment to the reduction of inflation by up to 2%.
The inflation was 0% during the COVID-19 pandemic. In June 2022, the inflation rise from 5.4% to 9.1%. But in August when the interest rate rose the inflation dropped to 8.3%.
In March, the Fed started to increase its near-zero interest rates by 0.25%. Since then, the Fed has increased interest rates by 0.75% in July, 0.75% in September, 0.75% in November, and 0.50% in May. Since 2022 began, rates have increased by 3.75%. The Fed last increased interest rates by 0.75%, which was the previous time it did so; this most recent occurrence occurred in the early 1980s.
Take A Look At the History of Federal Reserve Interest Rates:-
Below is a table that shows the changes in the rates from 2015 to 2022.
| DATE/YEAR | INTEREST RATES |
| 2nd Nov 2022 | 3.75% to 4% |
| 22nd Sept 2022 | 3% to 3.25% |
| 28th July 2022 | 2.25% to 2.50% |
| 16th July 2022 | 1.50% to 1.75% |
| 5th May 2022 | 0.75% to 1% |
| 17th March 2022 | 0.25% to 0.50% |
| 16th March 2020 | 0% to 0.25% |
| 3rd March 2020 | 1% to 1.25% |
| 31st Oct 2019 | 1.50% to 1.75% |
| 19th Sept 2019 | 1.75% to 2% |
| 1st Aug 2019 | 2% to 2.25% |
| 20th Dec 2018 | 2.25% to 2.50% |
| 27th Sept 2018 | 2% to 2.25% |
| 14th Jun 2018 | 1.75% to 2% |
| 22nd Mar 2018 | 1.50% to 1.75% |
| 14th Dec 2017 | 1.25% to 1.50% |
| 15th Jun 2017 | 1% to 1.25% |
| 15th Dec 2016 | 0.50% to 0.75% |
| 17th Dec 2015 | 0.25% to 0.50% |
What Is The Reason Behind The Increase And Decrease Of The Federal Reserve Interest Rates?
The importance of the federal reserve is to encourage the economy to be strong and safe. It maintains the employment rate, price stability, and appropriate rates of interest. The primary important work of the Federal Reserve is to ensure that the price is stable and appropriate. Here the meaning of price stability is to ensure the stability of inflation in an economy for the long run.
The stability in inflation shows that when inflation is low and stable it will allow the people of the economy to hold the money without getting worried about purchasing power. To run the economy smoothly during any pandemic and economic decline, the Federal Reserve decreases the interest rates. But when the economy is strong and stable it increases the rates of interest. Frequent adjustments are made in the interest rates by the Federal Reserve to run the economy of a company smoothly and most importantly during an economic crisis.
Federal Reserve decreases the interest rates: The Federal Reserve decreases the interest rate to circulate more cash in the banks and other financial institutions so that they can easily borrow and lend money. The decrease in the rates of interest accelerated economic growth and stability to avoid any economic crisis.
Federal Reserve increases the interest rates: When the economy of a country is strong the federal reserve increases the interest rates. This leads to the banks and other financial institutions’ difficulty in borrowing and lending money to each other. This results in less circulation of funds in an economy.
When the interest rates are decreased people get a chance to borrow excessive funds which can result in leaving the bank, financial institutions, and businesses in a risky position and the economy can be at risk.
The deadly COVID-19 pandemic has harmed the economy of the whole world and to this, the Federal Reserve responded with an increase in interest rates so that borrowing and lending reduce resulting in the smooth run of the economy for the long run.
