In terms of economy, America is the largest country in the world, whose GDP is $30.507 trillion. Meanwhile, the Federal Reserve, America’s central banking institution, has once again announced a reduction in interest rates. After this cut, the key rate has now become 3.9 percent, which was earlier 4.1 percent. This decision has come at a time when the American economy is facing a government shutdown and a decline in the rate of employment growth. However, the Fed says that this step was necessary to encourage economic growth and job creation.

Announcing the rate cut, Federal Reserve Chairman Jerome Powell said that the government shutdown has definitely affected economic activity, but this effect will not be permanent. He said that due to government work coming to a standstill, official figures of employment and inflation are not being released. Because of this, at present the Fed has to rely on economic signals from private institutions.

Decline in employment and rise in inflation became the reason for reducing rates.
The Fed had increased interest rates by 5.3 percent in the last two years to control inflation. Meanwhile, the pace of employment has slowed down, opportunities for new work are decreasing and consumer spending has decreased. The inflation rate is now at around 3 percent, which is more than the Fed’s target of 2 percent. Despite this, Powell said that now the focus will be on economic growth and increasing employment, because too tight monetary policy could have a negative impact on the market.

Impact on the American people and the world
This decision of the Federal Reserve is expected to provide relief to common American citizens. Loan installments will be cheaper, interest rates for houses and vehicles will decrease and it will be easier to take business loans. However, there will be a possibility of reduction in interest on savings accounts. This step is important at the global level also. Dollar may weaken due to low US rates and this is likely to increase investment in Asian countries including India.

Government shutdown becomes a big challenge
The federal shutdown currently going on in America is a result of the budget dispute between the government and Congress. Lakhs of government employees are without salary and the work of many departments has come to a standstill. Powell said that due to lack of government data, it has become difficult to decide the Fed’s policy. For this reason, the decision to reduce the rate in the next meeting to be held in December will depend on the circumstances.

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