Washington14 minutes ago
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US Federal Reserve President Geom Powell (File Photo)
The US Central Bank Federal Reserve can deduct 25 basis points (0.25%) in interest rates on Wednesday (September 17) on Wednesday (September 17). After this, the interest rate will be between 4% to 4.25%. This will reduce inflation in America and loans will be cheap. At the same time, investment of Americans in the Indian market may increase.
Last year, Fed had cut 0.25% in December, 0.25% in December, 0.50% in November and 0.25% in September. Since then the rates are between 4.25% to 4.50%. The September 2024 was cut after about 4 years.
Fed had reduced interest rates in September 2024 after March 2020. To overcome inflation, the US Central Bank had increased interest rates 11 times between March 2022 and July 2023.
Fed rate decides how much interest the bank will take interest from each other
Federal rates decide how much interest the bank will take on a loan given from each other in one night. But often it also affects the consumer date, morgase ie mortgaged things, credit cards and auto loans.
What can be the effect of interest rate cuts …
- High cuts can spoil America’s economic health. Investors may be dull.
- Low cuts cause disappointment in the market, as the market is expecting a high cut in interest rate.
- The delay in cutting interest rates may slow down the speed of the job market.
Policy rate is a powerful tool to fight inflation
Any Central Bank has a powerful tool to fight inflation as a policy rate. When inflation is very high, the Central Bank tries to reduce money flow in the economy by increasing the policy rate.
If the policy rate is high, then the loan from the Central Bank to the banks will be expensive. In return, banks make loans expensive for their customers. This reduces money flow in the economy. If the money flow is low, there is a decrease in demand and inflation decreases.
Similarly, when the economy goes through a bad phase, there is a need to increase money flow for recovery. In such a situation, the Central Bank reduces the policy rate. This makes banks cheaper from central bank and customers also get loans at a cheaper rate.
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