Question

Why does the federal reserve try to control interest rates?

Answer 1

Banking system of America is Federal reserve system . Fed controls the interest rate to stable the cost of products and also for creating a situation where all people get jobs . So by controlling the interest rate Fed help the economy as it motivates the people to spend more . Fed consider inflation , while controlling the interest rate . As the price increases , the purchasing value of money gets fall down . This is called inflation . As inflation is high , people need to spend more money for buying a product . So for controlling the high inflation , Fed increases the interest rate . Thus decrease the spending , borrowing of money , which gradually decreases the price and controls high inflation . When inflation is poor , Fed decreases the interest rate . That encourages the people to spend more .