A key aspect of monetary policy involves the Fed's ability to influence interest rates. Since 2008 the Federal Funds Rate has been at 0% in order to stimulate the economy by making it cheaper to borrow money in order to boost the economy. We are a consumer based economy so that's how things roll.
For background:
- Wikipedia: Federal Funds Rate.
- Investopedia: Discount Rate.
But low interest rates have a tendency - historically - to overheat the economy, which leads to inflation, which leads to another crash. Pressure has built on the Fed to nip this in the bud by raising the federal funds rate, but it has resisted because doing so prematurely raising the rates can also weaken the economy and lead to a crash.
There's your dilemma - and what the Fed has to weigh as they make their decision.
Here's commentary from smarter people than me:
- NYT: When Will the Fed Raise Rates?
- The Fiscal Times: 10 Ways the Fed’s Looming Rate Hike Touches You.
- Here's a bit from Quartz's analysis:
Americans are borrowing big again. The Federal Reserve’s credit numbers showed American consumers borrowed at an all-time record of $28.9 billion in September, besting the previous high-water mark set in November 2001. The surge wasn’t driven by mortgage lending, but by an ongoing rise in non-revolving credit—essentially car and student loans, which surged by more than $22 billion. Revolving debt—mainly credit-card debt—also increased, by $6.7 billion.
