Question

Research the U.S. economic growth AND unemployment rates for the same 3-year period (2016-2019) and explain why the Fed has raised the interest rate as shown in the picture. Also, predict what might happen to the Fed interest rate for the rest of 2019, and explain why.

Answer 1

For the three year period , the growth rate of the economy is increasing and the unemployment rate is decreasing. As the production of goods and services in an economy increases there will be more job opportunities created and this will reduce the unemployment in the economy.

A low interest rate will boost the economic activities. It increases the spending by the consumers

The Fed has increased the interest rate because the economy has recovered after recession . The growth is increasing and mire employment opportunities are being created.

Now, in 2019 the Fed will not probably increase the rate because the inflation rate is below 2 percent. A 2 percent level of inflation is required for a healthy economy.

An interest rate hike will be beneficial only if the inflation rate is increasing. If the Fed expects inflation rate to increase in the rest of the year then probably a rate hike will be beneficial.