Essay on Interest Rates Regulations: Essential Considerations for Achieving Economic Stability

Discussion Post #1

Monetary, just as the fiscal policies affect the economy adversely and therefore must be managed diligently. This post addresses some of the pertinent issues that arise from the effective implantation of interest rates in the economy to control investments, manage inflation as well as ensure that the economy stays stable. The post adequately addresses some of the considerations that have always remained unclear in as far as the issue of interest rates regulations is concerned. For instance, the post acknowledges that the interest rates have a positive and negative effect on the market of trade as well as a direct effect on the economy. Lower interest rates will indeed trigger borrowing, which will, in turn, encourage investment by far and large (Smialek, 2019). At the same time, with manageable interest rates, the economy will stay stable and the cost of production will stabilize making the price of commodities affordable for the general public.

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In total agreement with the post, the federal government holds the sole responsibility of ensuring that the interest rate remains at a stable position to encourage loan taking and small scale borrowing for investment. The extremely low-interest rate will trigger uncontrolled spending, which means that the inflation rate will also rise in the process. The fed must, therefore, come in to control the interest rate (Smialek, 2019). This post, however, failed to mention some of the ways by which the federal government can control the interest rates. The monetary policies must be strong enough and the mechanisms of ensuring that the interest rates stay at the level ordered by the government. The post also did not address some of the ways by which the interest rates can be inoculated against some of the global uncertainties through insurance. However, the post fully addressed the ways by which interest rates affect the economy.

Discussion Post #2

This post went to the details on how interest rates impact the market due to the influence of the money supply. The federal fund rate realistically impacts the level of interest rate in the market, which, by extension, affects inflation and the cost of living (Saunders & Cornett, 2019). The post adequately addresses the real case scenario by giving the example of the purchase of a car whereby individuals make purchases because of the price without looking into the interest rates. The more the purchases in the economy mean that the effect spills over to a wider scope of the economy (Smialek, 2019). To put this into the aspect, the more the money flows in the economy, the lower the inflation rate, thus increased employments and improved investments.

It is admirable how the post was able to show the role of the Federal Reserve in increasing the number of loanable interests in the population. Many investors are interested in a higher return on investment (ROI); therefore, the Fed must be able to play with the interest rates in a way that increases the loan uptake, at the same time cushioning the investors against any losses that may arise as a result (Smialek, 2019). The post was able to give some of the realistic solutions and examples by which investors can get risk-free securities such as treasury bonds. These are the expansionary measures that the Fed can put in place to manage and ensure that interest rates remain within the desired levels for equitable benefits. In a nutshell, the post met all the fundamental threshold of proving beyond doubts the role of Fed fund rates in the expansion or contraction of the consumer spending in the economy.

References

Saunders, A. & Cornet, M. M. (2019). Financial Markets and Institutions. New York, NY: Mcgraw-Hill Education, 26-31.

Smialek, J. (2019). "Federal Reserve Cuts Interest Rates for Third Time in 2019." The New York Times, The New York Times, 30 Oct. 2019, www.nytimes.com/2019/10/30/business/economy/federal-reserve-interest-rates.html

Smialek, J. (2019). The New York Times / Business. 1-2. Retrieved from https://www.nytimes.com/2019/07/10/business/fed-rate-cut.html