The Federal Reserve was established in 1913 to function as of the central bank of the United States and the key arbiter of its monetary policy systems. The Fed’s vital role is to regulate the supply of money and credit in an effort to maintain price stability and promote sustainable economic growth throughout the country.
In its regular courses of action, the Federal Reserve can use interest rate policy strategies to achieve these objectives and the Federal Open Market Committee (FOMC) is the body that ultimately determines the country’s base interest rate level (also known as the federal funds rate, or EFFR).
Impact on the U.S. Economy
The federal funds rate deeply affects America’s economy and can have a significant impact on the global financial system. An increase in the federal funds rate typically brings an increase in the value of the U.S. dollar, which is measured in three different ways:
Prevailing interest rates greatly influence the potential for strength or weakness in the U.S. dollar. A strong greenback should be of concern to the Fed for a variety of reasons. The majority of international trade is U.S. dollar-denominated and a rise in the value of the U.S. dollar implies that imports into the country will be cheaper. This is because U.S. residents get an opportunity to purchase foreign goods (or to make international trips) at lower relative prices.
However, most U.S. manufacturers and multinational organizations tend to be against a strong dollar policy at the Fed. Rising market valuations in the greenback make American products more expensive (less competitive) in the international marketplace. As a result, demand for U.S. goods decreases due to high prices. From the Fed’s perspective, low demand and reduced revenues in the manufacturing sector can lead to increased levels of unemployment.
In the U.S. business economy, the technology and pharmaceutical industries have a heavy presence out of the country and they can be negatively impacted by a strong dollar. In 2015, many U.S. companies (including Microsoft, Bristol-Myers Squibb, and Procter & Gamble Co.) released earnings reports showing that the strong dollar had adverse effects on sales of up to five percentage points each year. These figures can equate to substantial amounts of money when we consider the expansive market cap of these organizations.
Impact on the Global Economy
After remaining weak in the year 2017, the U.S. dollar started gaining strength in 2018 and this trend has continued throughout 2019. A high U.S. dollar exchange rate has the potential to slow down trade activities in the rest of the world. In other words, as the greenback strengthens, currencies used by many of the country’s trading allies begin to weaken.
Since the majority of international trade and investment transactions are conducted using the U.S. dollar, a rise in the US dollar can significantly impact demand for many different products and commodities. Moreover, countries doing U.S. dollar-denominated business will find it expensive to borrow the greenback in order to finance their international trade. As a result, a strong dollar restricts global financial flows, thereby slowing aggregate global trade activities.
In 2015, the strong value of the dollar had adverse effects on the eurozone. In response, the European central bank (ECB) was forced to initiate a quantitative easing plan to jumpstart the stagnating economy. Other evidence of the trend’s impact could be seen in countries like Australian and Chile, where the price of important exports commodity like copper experienced steep declines.
The Fed plays a crucial role in both the U.S. and world economies and its voting members must find a perfect balance between changing interest rate levels and the value of the currency. A too-strong dollar has certain benefits but also impacts the economies of many nations. As a result, the FOMC plays a critical role in defining global economic trends.
Fedha ilianzishwa mwaka 1913 kama benki kuu ya Marekani na mamuzi muhimu wa mifumo yake ya sera za fedha. Fed ina jukumu muhimu la kudhibiti usambazaji wa fedha na mikopo katika juhudi za kudumisha utulivu wa bei na kukuza ukuaji wa uchumi endelevu nchini kote. Fedha ya Marekani (Fed) inapaswa kuwa na uwezo wa kuamua kiwango cha kiwango cha riba cha nchi, na Kamati ya Soko la Federal Open Market (FOMC) ni mamlaka ya kuamua kiwango cha kiwango cha riba cha nchi (kama vile kiwango cha Fedha ya Fedha). Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha ya Fedha. Kuongezeka kwa kiwango cha fedha za shirikisho kwa kawaida huleta ongezeko la thamani ya dola ya Marekani, ambayo hupimwa kwa njia tatu tofauti: Viwango vya riba vinavyoenea huathiri sana uwezekano wa nguvu au udhaifu katika dola ya Marekani. Fed ina wasiwasi juu ya fedha ya kijani yenye nguvu kwa sababu mbalimbali. Biashara ya kimataifa inaendeshwa kwa dola za Marekani na kuongezeka kwa thamani ya dola ya Marekani kunamaanisha kuwa bidhaa zinazopelekwa nchini itakuwa nafuu. Hii ni kwa sababu wakazi wa Marekani kupata fursa ya kununua bidhaa za kigeni (au kufanya safari za kimataifa) kwa bei ya chini ya jamaa. Hata hivyo, wazalishaji wengi wa Marekani na mashirika ya kimataifa huwa dhidi ya sera ya dola yenye nguvu katika Fed. Kuongezeka kwa thamani ya soko katika greenback hufanya bidhaa za Marekani kuwa ghali zaidi (zisizo na ushindani) katika soko la kimataifa. Matokeo yake, mahitaji ya bidhaa za Marekani hupungua kwa sababu ya bei ya juu. Kutoka mtazamo wa Fed, mahitaji ya chini na mapato yaliyopunguzwa katika sekta ya utengenezaji yanaweza kusababisha viwango vya juu vya ukosefu wa ajira. Katika uchumi wa biashara ya Marekani, teknolojia na viwanda vya dawa zina uwepo mkubwa nje ya nchi na zinaweza kuathiriwa vibaya na dola yenye nguvu. Kampuni nyingi za Marekani, ikiwa ni pamoja na Microsoft, Bristol-Myers Squibb na Procter & Gamble, zilitoa ripoti za mapato, na kuonyesha kuwa dola imara ilikuwa na athari mbaya kwa mauzo ya hadi asilimia tano kila mwaka. Takwimu hizi zinaweza kulinganishwa na kiasi kikubwa cha pesa tunapozingatia kiwango cha soko la kupanuka la mashirika haya. Baada ya kushuka kwa kiwango cha chini mwaka 2017, dola ya Marekani ilianza kupata nguvu mwaka 2018 na mwenendo huu umeendelea mwaka 2019. Kiwango cha juu cha dola ya Marekani kinaweza kupunguza shughuli za kibiashara katika nchi nyingine za dunia. Kwa maneno mengine, wakati dola ya kijani inapoimarika, sarafu zinazotumiwa na washirika wengi wa kibiashara wa nchi hiyo huanza kudhoofika. Kwa kuwa biashara nyingi za kimataifa na shughuli za uwekezaji zinafanywa kwa kutumia dola ya Marekani, ongezeko la dola ya Marekani linaweza kuathiri kwa kiasi kikubwa mahitaji ya bidhaa na bidhaa mbalimbali. Kwa kuongezea, nchi zinazofanya biashara kwa dola za Marekani zitapata kuwa ghali kukopa dola za Marekani ili kufadhili biashara yao ya kimataifa. Matokeo yake, dola yenye nguvu hupunguza mtiririko wa fedha ulimwenguni, na hivyo kupunguza shughuli za jumla za biashara ya ulimwengu. Katika mwaka 2015, thamani ya dola ilizidi kuongezeka na kuathiri uchumi wa nchi za Ulaya. Katika majibu yake, Benki Kuu ya Ulaya (ECB) ililazimika kuanzisha mpango wa kupunguza kiasi ili kuanzisha uchumi uliokuwa umesimama. Uthibitisho mwingine wa athari ya mwenendo huo unaweza kuonekana katika nchi kama vile Australia na Chile, ambapo bei ya bidhaa muhimu za kuuza nje kama shaba ilipata kupungua kwa kasi. Fed ina jukumu muhimu katika uchumi wa Marekani na uchumi wa dunia, na wanachama wake wanaopiga kura lazima wapate usawa kamili kati ya viwango vya viwango vya riba na thamani ya sarafu. Dola yenye nguvu sana ina faida fulani lakini pia huathiri uchumi wa mataifa mengi. Kwa sababu hiyo, FOMC ina jukumu muhimu katika kufafanua mwenendo wa uchumi wa kimataifa.