The FED is the bank for our Government and all US banks. By controlling the money supply they are able to influence our economy. They are the system that decides how much money is in the economy, which can either cause our economy to expand or contract. If they want to increase money supplies they buy securities and to decrease the money supply they sell securities.

When inflation is high, everything costs more, so money is worth less. Having too much currency in the market normally causes this. This has a huge impact on business long term planning and growth. Both businesses and individuals are less likely to spend on things like building, houses or saving because of t

he fear of their investment becoming worth less.

Businesses have been depleting inventories to help offset their liabilities in the present economy. If the market were to take off, demand could far exceed the supply available. This can lead to inflation, with too much money in the market and nowhere for it to go. The FED would rather have the economy have a steady, slow growth. When things move to quickly they become very hard to control and manage. When things are slow and predictable our entire economy is far better off in the long run.

High inflation leads to higher prices. Higher prices cause less purchasing power, which means demand is down. This leads to a surplus of goods in the economy, which causes high unemployment because production has to decrease to compensate. With less production there are fewer jobs available. This can push our economy into a recession. The U.S. really hasn’t seen much inflation since the mid 1980’s. That is when government began paying more attention to inflation. It took till the early 1990’s for the nation to experiencing a combination of strong growth, low unemployment, and slow inflation.

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