2min chapter

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Understanding Our Economy Is Easier Than You Think, and More Important Than You Know | PREI 415

Passive Real Estate Investing

CHAPTER

The Fed in a Nutshell

The Fed is trying to influence spending and the main way they do it is by raising interest rates to slow down spending money becomes more expensive. By lowering interest rates they encourage people and businesses to spend thereby spurring the economy. The only lever the Fed has left if you will is the adjustment of Fed funds rate basically adjusting rates up and down. There's something called quantitative easing where they buy long-term bonds It's all very technical but the bottom line is what they're trying to do is influence spending.

00:00
Speaker 2
theme of understandable economics and for those people that don't fully understand you know the levers that the fed plays with how does the fed fight if you will that's not a great word but fight you know downturns and recessions or help stimulate the economy I mean in other words what do they do
Speaker 1
well this is where a lot of people's eyes glaze over and I promise your listeners that they won't do it now 30 seconds or less when the economy is slow when people aren't spending when businesses are businesses aren't spending the fed lowers interest rates how does that help money is cheaper if you're thinking of adding an addition onto your home and interest rates are 6% you're less likely to do it than when interest rates are 2% so by lowering interest rates they encourage people and businesses to spend thereby spurring the economy and on the other side of the coin when the economy is too robust when inflation is breaking out when people are spending too much money and they fear that the economy is going to overheat they raise interest rates discouraging people from spending and therefore rating the economy back in that's the Fed in a nutshell and
Speaker 2
would you agree thank you for that answer by the way would you agree that the only lever the Fed has left if you will is the adjustment of Fed funds rate basically adjusting rates up and
Speaker 1
down they have some other technical levers they pay interest on bank reserves they can provide forward guidance by saying we're going to do this playing again playing with people's psychology there's something called quantitative easing where they buy long-term bonds it's it's all very technical but the bottom line is what they're trying to do is influence spending and the main way they do it is by raising interest rates to slow down spending money becomes more expensive or to encourage spending by lower interest rates and thereby spurring the economy that's basically in a nutshell what they do
Speaker 2
okay

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