I’ve been reading about interest rates. What I’ve learned is that the Fed was created in 1913 to stabilize the economy. The Fed is the central bank of the United States but it’s totally independent of politics. That independence was further increased in 1935. Neither Congress nor the President has power over the Fed.
They are adjusting interest rates because of inflation. The value of the US dollar is dropping fast. The inflation rate is currently around 9% while food is increasing by about 11.5%. The reason inflation goes up is because people in the US have a lot of money and retailers don’t have a lot of product to sell. I suspect the value of the dollar drops because we’re unable to spend some of the money we have in the ways we want. We can observe part of this when we see product shortages all around us.
In 1984, as President Reagan campaigned for re-election, the Fed was asked to meet at the White House. Reagan was ordering the Fed not to raise interest rates before the election. He responded by ignoring him. Later he made a very sharp increase in interest rates. That sharp increase caused the inflation rate to go from 14.85% back down to 2.5% within 3 years, ending the weakening of the dollar.
The Fed president is selected by its own board and some board members are elected by large banks. Board members only vote for 1 term then rotate. They get no funding from the government and they serve on the board through multiple presidential and congressional changes.
Written by Joel Dare on November 2, 2022