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In December 2015, the Federal Reserve increased its policy interest rate target. This was the first...

In December 2015, the Federal Reserve increased its policy interest rate target. This was the first increase since cutting the target to close to zero in December 2008 to combat the economy weakness associated with the financial crisis. If central banks use interest rates to moderate business cycle swings in the economy, what might you infer from this decision about the Fed’s view of the economy?

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The decision to increase the interest rate by Fed, showed the acceleration in the economic activity and faster GDP growth that led the Fed to grow in confidence of the recovery of the economy and increase the rates.

Increase in demand in the economy is the prime reason of growing economic activities and it has led to increase in inflation rate. To control the inflation rate within the inflation rate target, rates are increased to discourage the consumption level and control the inflation. So, Fed increased the FFR rates.

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