Federal Reserve

            The Federal Reserve has made some actions recently due to the nation's money supply. This article reviews what the Federal Reserve is doing, and why they have acted this way. Toward the end of this paper, I"ll give my opinion on whether I believe the action being taken is correct or not. .
             The Federal Reserve has cut a key short term interest rate by a quarter of a percentage point. This is the first action taken since the beginning of December. With a recent sharp drop in the nation's supply of money, this could be signaling that the U.S economy will stall again. After a similar change in the money supply occurred last summer during the economics initial rebound form the recession, economic growth vanished in the second half of the year. Because of the year's experience, officials don't want to take any chances; it seems like too big of a risk to ignore. Federal Reserve officials say they aren't sure what caused the decline in the M2, or what it says about the economy's future.
             Financial analysts say the quarter point drop in federal funds is an unsure plan, because it will be enough to cause major banks to lower the 6.5% prime lending rate. Also, Economists watch the M2 movement closely because it signals the economic shift. The M2 includes currency in circulation, checking and saving deposits, certificates of deposit less than $100,000, and most money market mutual fund shares. The rates banks charge each other for overnight loans and anchoring most other short interest rates came as major retailing chains reported different results, after strong gains. By doing this the Fed hopes to encourage more money growth in different ways. The first step is to lower rates by the public giving up less by way of forgone interest. Secondly, with lower rates, more borrowing will take place and interest payment will go down. Now, as banks lend money, the cash the Fed supplies to the banking system is multiplied several times over and money expands.