Andrew Soergel of U.S. News explains that the Federal Open Market Committee, the branch of the Reserve that determines the direction of monetary policy, is unlikely to increase interest rates through the rest of 2019. This is somewhat surprising in light of the flurry of interest rate hikes seen throughout 2018. That said, the decision appears expected given that a recent employment report shows that the U.S. generated just 20,000 new positions in February. Additionally, consumer and producer price indices in recent months have not shown the level of inflationary pressures that would warrant future rate hikes. The Federal Reserve Chairman Jerome Powell also recently stated that he and his colleagues had "seen increasing evidence of the global economy slowing down." So, how does this relate to IPE?
Soregel's article illuminates a major topic of this block: the role of the Federal Reserve in formulating monetary policy. Specifically, its primary goals are to maximize employment, to maintain price stability, and to moderate long-term interest rates. The adjustment of interest rates is the primary tool the reserve uses to spur changes in the economy. In order to foster more spending and thus economic growth, it cuts rates, making borrowing more cheap. Raising rates, conversely, accomplishes the opposite; that is, it cools the economy. This gets at the central trade-off that any state's central bank faces when shaping monetary policy, and that is between inflation and unemployment, which, as the Phillips Curve so brilliantly elucidates, holds an inverse relationship. However, there must be a distinction between short-term and long-term gains. A monetary expansion will, in the short run, reduce unemployment, but eventually labor market adjustments will restore unemployment to its nature rate. Thus, the fundamental objective of monetary policy is to achieve and maintain a very low and stable rate of inflation. That said, a moderate level of inflation is good because it is an indicator of money flowing through the economy. So, to tie such theoretical concepts back to Soregel's article, the Federal Reserve is not raising interest rates most likely because the economy is slowing down and employment rates are growing are a slower rate than previous years. Thus, by keeping interest rates lower, banks are more likely to lend to businesses that hire workers, fostering economic growth while driving down the unemployment level.