Deficit and DebtBy _________Principles of Macroeconomics/372The direction of monetary policyBeginning in September 2007, the federal funds target was reduced from 5.25%to a range of 0% to .025% on December of 2008. By historical standards, rateswere kept low for an unusually long time. In fact, in December 2015, the Fedbegan raising interest rates and expects to gradually raise rates further this year.The Fed anticipates that even after employment and inflation are near consistentlevels economic conditions may warrant keeping the federal funds below normallevels. Although rates are being raised, the fed plans to maintain an stimulativemonetary policy.The U.S. money supply has been expanding at anunprecedented rate.All of this new money has gotten into the U.S. financial system but it is not getting into the hands of U.S. businesses andconsumers.Even though the money supply is exploding, U.S. banks have dramatically decreased lending.We have seen the U.S. government shovel massive amounts of cash into the U.S. financial system and then watch as thebig banks sit on that cash and refuse to lend it.One of the things they are doing with it is buying U.S. government debt.Money is being pumped into U.S. TreasuriesInterest rates are currently low due to a weakeconomyInterest rates are constantly fluctuating because interest rates follow the trend of theeconomy if the economy is strong then the interest rates will be high. If theeconomy struggles then t ...
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