how and why does the the fed use interest rates to combat inflation?
819171
Hey! Not only the FED (The Central Bank of the United States) uses its primary rate (a reference rate to the market), but currently, most of the countries in the world utilizes the same system. It's called "inflation target" and its done through the teories of monetary policy. \nThe way it works its pretty simple: the Congress (usually) establishes the inflation target (let's say 3% per year) and the FED focus on it in order to meet the number.\nHow does it impact in your life and in inflation? When the interest rate (primary rate) goes up, the "cost of money" increases, reducing the availability of currency in the nation. Less money, less expenses; less expenses, less demand, less demand leads to low inflation, due to the fact that companies will have to compete in a market with less impulse to consume.\nAt last, but not least: combating inflation is a very important government role. As a guy from Brazil - and my country used to have a 50%+ inflation rate PER MONTH - I can tell you that what inflation does it is pretty nasty: captures the income of the poor and the lower middle class.\nIn Economics inflation is also called  "the taxation of the poor", because it takes the money of low income families before they even can spend it.\nHope it has helped you somehow!
1124546
federal reserve rates affect all interest rates, and these are changed due to inflation and other reasons.  the fed "loans" money to other private banks at certain rates and the banks to make money have to charge over those rates.
613669
The lending rate is made up of the: Discount Rate, or the Federal Funds Rate.  These are the interest rates set by the Federal Reserve that banks have to pay when they need to borrow money when they run out of excess reserves [the money that they are required to hold in case people want to make large withdrawls].\n\nThe lending rate is determained by market supply and demand.  In other words the interest rate charged on loans to the public is determained by how many banks are willing to offer loans and how many people want to take out loans.
1130342
The U.S. economy has been climbing since the 9-11 incident. The interest rates are rising again so it is apparent that the government is trying to slow down spending. This is to help prevent inflation and gets some good money into Uncle Sam's pocket. The economy will continue on it's current course so long as people keep spending. That's the fuel that runs the engine, it's not the money but the actual trasaction of the money from one person to another.
1140485
It would take a whole course to give you a comprehensive response. You might consider signing up for one at a local college.\n\nMeanwhile, in a nutshell, here's what's happening at this time in the economy: The Fed is always concerned with keeping economic growth at an acceptably high level and keeping the rate of price inflation at an acceptably low level.\n\nWhen the economy gets cooking, the money supply expands (that's actually what inflation is). The business community spends more to satisfy their higher level of business activity, and consumers feel rich so they spend more.\n\nThe US economy has been on a five-year expansion. It's reaching the level where inflation is becoming a serious problem. So the Fed has been raising interest rates to try to keep growth from getting too fast. But consumers have borrowed huge, huge amounts, including in mortgages, so if the Fed "slams on the brakes" too hard by raising interest rates too much, the risk is that a severe recession or worse could set in, triggered by that mountain of debt.\n\nMeanwhile, other economies, especially China and India, have been growing at very high rates. They are gobbling up all of the commodities they can find - oil and gas, lumber, base metals, etc. That adds to inflation.\n\nWe are in the midst of a commodities boom. Mining and energy stocks have come a long way up but have a long way still to go. Many companies have done poorly for several years because they don't operate well in a higher-inflation environment (their costs go up faster than they can raise prices).\n\nThat's a lot of information in one short message. As I said, look into taking an economics course. I was a chemist once, but enrolled in business school and loved every minute of it because of the fascinating and useful things I learned.\n\nBest of success.
432542
Inflation is actually created by growth. The key to keeping the economy in balance is growing at a steady rate. That's why we experienced widespread inflation in the 90s with such unreasonable growth. As fantastic as growth is, it has its own problems.\n\nHowever, there can also be inflation at the same time as an economy slowdown. (For instance, in any major historical depression, infation becomes high. In the German depression after WW1, people would actually run out and buy things immediately after getting paid because their money depreciated by the minute.)\n\nMostly, increased demand increases inflation. Decreased supply (such as with oil) also increases inflation. There are several other factors, but these are the major issues.\n\nRaising prices, though an indicator of inflation, also work to curb inflation sometimes by curbing demand. Of course, this only really works with goods that have relatively elastic demands.
42674
The reason is something like this. It was in the interest of profit to lower the interest rates in the US. By shifting there money to the new currencies and forcing the interest rates down more people get loans that are not fixed interest. There will come a time when all these rich people switch there money back to US dollar and raise the interest rate and steal all your money.
482769
That's because monetary policy is far more flexible : \n1. u don't need to enact laws to change monetary policy\n2. the impact of rate hikes or rate lowering spreads wider than tax policy
777146
Prime rate was 7% on 11/05 and 8.25% on 11/06.  The reason why they go up is because of the Fed wants inflation to remain below 3%.  Too much inflation hurts everyone because prices increase rapidly.
620914
Trying to slow inflation & growth.
457949
ONE DAY WONDER and here's why:\nGenerally a one shot news item that is of no direct consequence to the market itself is quickly forgotten.  However, yesterdays news gave hope to the theory that the Fed was done raising interest rates for the time being.  Today however, 4/19/06, the morning news told of March CPI (inflation) being up .4%.  Multiply that by 12 months and it is an annualized inflation rate of 4.8%...much higher than Jan and Feb, which together averaged an annualized 3.8% The stock market HATES inflation because it a precursor to higher interest rates and that hurts the market by making bonds more attractive and also because higher interest rates hurt business profitability and slow down the economy. Today's bad news neutralized yesterday's good news.
1142697
Printing more money causes inflation.  The more money there is in the economy for the same number of goods, the greater the cost of each good.  \n\nInterest rates are a combination of the inflation rate and the "real" interest rate (that discounted for inflation).  If inflation increases, the interest rate goes up.  The government pays its debt with interest.  As such, it just got a lot more costly to pay off the debt.\n\nSo ... if a lot of money is printed, we get all of the negatives associated with inflation and the devaluation of the currency, plus it will cost a lot more to pay off the debt.
527762
If prices rise unexpectedly, consumers will update their expectations about future inflation. Any decrease in unemployment from inflationary money policy will only be temporary, but higher inflation will be permanent. Authorities (the Federal Reserve in our case) can assure the markets by issuing statements that they will not pursue inflationary money policy (like increasing the money supply). Over many years, if the Fed has made good on those statements, the market will think that those statements are credible. The cost of maintaining this trust is the loss of control over the short-term economy.
1138041
At each of its meeting, the Federal Reserve examines a number of indicators of current and prospective economic developments.  Then it must decide whether to alter its target for the federal funds rate.\n\nAn actual decline in the rate stimulates economic growth, but an excessively high level of economic activity can cause inflation pressures to build to a point that ultimately undermines the sustainability of an economic expansion. \n\nAn actual rise in the rate curbs economic growth and helps contain inflation pressures, and thus can promote the sustainability of an economic expansion; too great a rise, however, can retard economic growth too much. The Federal Reserve’s actions on the target federal funds rate are undertaken to achieve the maximum rate of economic growth consistent with price stability and moderate long-term interest rates.\n\nCheck this out if you want to know the details;\nhttp://www.federalreserve.gov/pf/pf.htm
109835
the federal reserve bank sets monetary policy.  the most important of these policies, the interbank federal interest rate, controls how much it costs for regular banks to borrow money.  this in turn controls how much money there is floating around in the economy, which affects inflation and economic growth.\n\nhere is more information about how the chairman is selected and the responsibilities of the federal reserve board:\nhttp://www.federalreserve.gov/pubs/frseries/frseri.htm\n\nhere is a good site to learn more about how the fed works and why it exists:\nhttp://www.federalreserveeducation.org/fed101/structure/
166256
idk is not an answer, stop whoring for points.\n\nAs far as the real answer, all funds in the bank are secured by the federal reserve. Basically, it will never happen again in the forseeable future. Banks are required to hold a reserve of around 10% of all deposits and can borrow from the Federal Reserve at any time (although they prefer to borrow from other banks)\n\nThe banks, and the government, learned their lesson after the bank runs in the 40's
1096616
Which interest rate?  There's the effective fed funds rate at the top and the daily data there.  If that's not it, there are plenty more to choose from.\n\nThe full data are here: http://www.federalreserve.gov/releases/h15/data.htm