By Ramsey Judah
The Federal Reserve, a privately held corporation that prints our currency and loans it to the US government with an interest rate, recently stated its going to raise interest rates as soon as December. It reasoned that unemployment is at nearly 4% and the Fed fears that inflation will rise because of it. So by raising the rate, it causes money circulation to go down and controls inflation.
The Fed caused the interest rate to jump almost half a percent after Donald Trump was announced the winner of the 2016 presidential election. This will ultimately be an interesting set of circumstances for the Fed since Trump ran his platform praising the Fed’s choice of keeping the rate low. Raising rates would also go against the Republican platform of ensuring a viable open economy for everyone.
The Fed has promised that the rise in the interest rate will not be hard and fast, but rather a gradual rise matching inflation. But what the Fed does not seem to realize is that the higher rate of employment are low-paid jobs that do not build wealth. A major lack of wealth-building jobs means that the amount of new money circulated into the economy will not be significant enough to raise inflation significantly and any new money will most likely come from credit cards and other loans. This would actually have a negative effect on inflation and a rise in interest rates would truly compound the distress of working class.
This also puts the real estate market in a predicament because a rise in interest rates will make loans more expensive. A more expensive loan will then lower the amount that home buyers can borrow which will cause cheaper inventory to become more desirable, leaving higher-priced inventories either stalled or in a race to the bottom for buyers.
Some analysts say that the Fed may actually reverse its decision to raise rates because obtaining a loan today is already expensive. By raising rates, it would then make loans more expensive which could then turn off borrowers and put even more of a stranglehold on the money supply in this country.
A major first step to fix this economy would be to bring down interest rates to historic lows. It must also encourage Wall Street and the super rich to create wealth-building very-low interest loan programs for small business, tech innovations and engineering projects that could result in voluminous positive change in the market.
Giving people in this country the ability to innovate and realize their ambitions will create wealth-building jobs, change lives and increase the ranks of the middle class. A healthy middle class will produce an even healthier economy.