Briefly discuss why FED raised US interest rates in September 2018.

Briefly discuss why FED raised US interest rates in September 2018.

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Expert Solution

The rise in the Fed sets a target range of 2.25 per cent to 2.5 per cent for the federal funds pace. The increase of 25 basis points came as "the labor market continued to strengthen and economic activity grew at a fast rate," job gains were high, on average, in recent months, and the unemployment rate remained weak, household spending continued to rise steadily, while business fixed investment growth moderated from its rapid pace earlier in the year.

The increase places interest rates at the highest level since 2008, when the housing bubble and recession pummeled the economy.

The Fed used similar reasoning during the third quarter of 2018, when it last lifted interest rates. The Committee found that more incremental rises in the target level for the federal funding rate would be consistent with a sustained expansion of economic activity, stable labor market conditions and inflation close to the symmetrical 2 percent target of the Committee in the medium term

Rahul Sunny answered 1 year ago

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