Based on the current state of the economy recommend whether

Based on the current state of the economy, recommend whether the Federal Open Market Committee (FOMC) should rise, lower, or keep short-term interest rates (the federal funds rate) the same. Support your recommendations with your research findings.

Solution

Based on the current state of the economy, recommend whether the Federal Open Market Committee (FOMC) should rise interest rates (the federal funds rate. The committee sets a target for the Federal Funds rate, a key interest rate between commercial banks which in turn influences borrowing costs throughout the economy. That rate has been held close to zero (technically it is a range of 0.0% to 0.25%) since 2008. Since 2008 the Fed also sought to buoy the crisis-hit US economy with a vast bond-buying programme. That quantitative easing (QE) scheme involved printing money to buy assets off financial institutions, in the expectation that they would reinvest the funds in the wider economy.

Unemployment is at 5.1%, the lowest since March 2008. Economic growth has been picking up. GDP rose at a 3.7% seasonally adjusted annual rate in the second quarter of 2015. Unless these stronger conditions are matched by more normal monetary policy, economists see risks for inflation rising too high in the future. The Fed’s favoured inflation measure, the index of personal consumption expenditures (PCE), is near zero and well below the central bank’s 2% target.

To support continued progress toward maximum employment and price stability, the Committee should rise interest rates.