President Trump had been pressuring Federal Reserve (Fed) to lower the benchmark interest rate for over 1 year. July they did by .25% and is considering another .25% in September. Now Trump is pressuring for a 1% decrease to 1.25%. Trump’s is considering cutting payroll taxes, which is funding for Social Security and Medicare. If interest rates are low and recession hits, there is limited opportunity for the Fed to help the economy.
Federal Reserve prefers rates between 2% and 5% to maintain a healthy economy. This range helps keep the nation’s gross domestic product (GDP) between 2% and 3% annually, and natural unemployment between 4.5% - 5.5%. Companies worry once unemployment decline below 4.5% because lack of qualified people.
Ever since 1970, more often, the benchmark interest rate has been around 3.25% to 6.5%. It ranged 8% to 20% to fight inflation in late 1973, 1974 and 1980s. When Obama became president January 2009
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and the US was in the Greatest Recession since the Great Depression, interest rates were at .25%. Rates were at 6% when Bush became president. In 2015, Feds slowly increased interest rates quarterly, as overall GDP was 1.6%, unemployment 4.6%, inflation 2.1%, and GDP and economy had been steadily improving for years. As Trump inherited a strong growing economy from Obama in 2017, interest rates continued to slowly increase to 2.25% - 2.5%.
Federal Open Market Committee (FOMC), consisting of 7 governors of the Federal Reserve Board and 5 Federal Reserve Bank presidents determine interest rates. Federal Reserve lowers the benchmark interest rate when the economy needs support, helping create market conditions that provide jobs, and helping prevent recessions.
When times are good and low unemployment, Fed raises interest rates as a defense against inflation. July 2019 was the first time since the financial crisis that interest rates were lowered. It normally takes 8 to 24 months for administration’s policies to affect the economy. What possibly is the Federal Reserve telling us? Top 1% and Corporate massive tax cuts didn’t work. Corporations didn’t invest enough into the economy. Tax cuts didn’t pay for themselves, instead increasing debt by more than $1 Trillion yearly, more than any of Obama’s last 4 years. US $22 Trillion debt is a worry. Trade wars are having negative results, hurting many countries besides the US. Average workers’ incomes haven’t kept up with inflation since the 1980’s. US economy is softening.