Question

The Federal Reserve has recently started to adjust interest rates higher after maintaining lower rates in response to the 2008 recession. What is the economic significance of this change? What will the impact be on the business environment?

Answer 1

When the Federal Reserve has started to adjust the interest rates higher after maintaining lower rates,it will mean that the Federal Reserve is trying to control the demand and the inflation in the economy because when the higher interest rates will be maintained by the Federal Reserve, it would be done in order to counter the inflation and higher demand in the economy because when there will be a higher demand the prices of goods and services will be rise leading to inflationary situation so interest rates will be risen in order to counter these inflation because rising of interest rate will curtail the demand.

This will be leading to lower demand generation for the business environment and there will be lower loans which will be taken by the business organisation and there will be lower production because the Federal Reserve is trying to control the inflation and economy and hence there will be lower demand and there will be lower profits for the business and it could be negative for the business in the short run.