The Federal Reserve's Interest Rate Policy and Its Impact Against a Background of Inflation and High Unemployment Rate

Abstract

This research adopts various economic data sources to investigate the effects of Federal Reserve (Fed) policies on the US economy. Specifically, the study focuses on labor market flows, short and long-term inflation expectations, and interest rates from 1960 to 2023. The findings suggest that over the past three decades, the Fed has artificially manipulated interest rates to curb long-term increases in unemployment. In this regard, this paper discusses the Impact of Business Financing and Costs, Labor Costs and Prices, Impact on Market Supply and Demand on interest rate changes from three perspectives. This study delves into detailed micro data on job vacancy rates and average earnings coefficients for different workers. By analyzing these factors and interest rate data, the paper argues that there is a strong correlation between employment trends and the Federal Reserve's monetary policy. Based on the data, the study projected that even if long-term inflation expectations remained stable, underlying inflation would still be half a percentage point above its long-term trend by the end of 2023. Overall, the paper provides valuable insight into the complex relationship between Fed policy, employment trends, and inflation in the U.S. economy.