10/31/2005

Fed likely to raise rates again

Interest rates are once again on the rise. I think that the main reason for the hike in the interest rate is an attempt to slow down inflation. With higher interest rates comes slower growth. Fed officials are watching the economic data closely as they try to determine when they can stop raising rates, but the last report on personal income and spending last month is unlikely to change them from their current trend. After our country recovers from its recent disasters I know it will become a flourishing place for a long time.

2 comments:

Connor said...

When interest rates go up, bond prices go down. This can eventually put a strap on the government. Resulting in a sticky situation. Should the government continue to allow rates to rise in order to slow down inflation, while decreasing their own funding through bonds? Or should they lower rates so bond rates go back up and people start buying them again? Tough call.

Dr. Tufte said...

-1 on Connor's comment for a non-sentence. (Your understanding of macro isn't that hot either).

Yes, the Fed is tapping on the brakes. They've done this about a dozen times over the last 2 years. It is fairly standard for them to try and slow the economy down a bit when it gets going. They'd rather "tap the brakes" when the economy is strong then hit them harder when there is a problem.