The Federal Reserve and the American Economy.

To: Miriam Flisser.

From: Michael Kusi.

Topic: The Federal Reserve and the Financial Impact on the American Economy.

Date: 8/14/24.

Welcome and good afternoon. Today I will talk about the Federal Reserve and the Financial Impact on the American economy. The Federal Reserve is the central banking system of America, and it sets monetary policy for the country. Monetary policy is the system of the central banking system that determines things like interest rates in this country. ?The Federal Reserve System is the central banking system of the United States. It was made on December 23, 1913, with the enactment of the Federal Reserve Act, after several financial panics facilitated a need for central control of the monetary system in order to deal with growing financial crises. These financial panics weakened the economy, and it was hard to deal with these crises without having a central banking system.

The inflation rate in America has gone done to 2.9%. It is interesting that when Republicans lacked control of Congress, the inflation rate went up to as high as 9%, but when Republicans received control of Congress, this is when the inflation rate started to go down. This is because inflation is driving by government overspending, as the federal government can always write checks and pass on the cost to you and I, the taxpayer. The Federal Reserve was thinking of another rate cut to help with the financial uncertainty in this country.

????????? However, debt in this country has unfortunately been increasing. The total American ?household debt rose by $109?billion and is now ?$17.80?trillion. This is according to the non-partisan Quarterly Report on Household Debt and Credit. ?The money that people owe on mortgages were up $77?billion to reach $12.52?trillion. A lot of people are one to two missed payments away from foreclosure, and any unforeseen circumstance such as a lost job or a decrease in their paycheck could mean that the homeowner could no longer afford their mortgage. Car loans have also gone up $10?billion to reach $1.63?trillion. ?The balances that people owe on their credit card have gone up by $27?billion to reach $1.14?trillion. These credit card balances, coupled with high interest rates, means that many people will not be able to afford to pay off their credit cards. Many people are paying the minimum balance on their credit cards and it will take decades for them to fully deal with their credit card debt.

The amount of people who start to take out a mortgage has stayed at a constant low. It is harder to refinance, and to get the mortgage that they need to buy the house of their dreams in this economy. One way that homeowners deal with the impending economic crisis is by using home equity line of credit. They are utilizing the equity in their homes to pay off expenses. For many people this need is urgent and they cannot pay off their expenses any other way. However, home equity is but a temporary solution, and eventually this money source runs out. The delinquency rate is at 3.2%, and these people are at risk of defaulting on their loans because of missed payments.

The balance of mortgages owned increased from April to June of 2024. It is now at 12.52 trillion. The trouble with taking out home equity lines of credit is that there can be a balance, and this balance has risen by more than $4 billion. This is the ninth quarter that it has risen which means that it has been 3 years since it has decreased. People are feeling the pain of the economy in their wallets, in their pockets, and in their checkbooks. There is $380 billion in balances that people have in their home equity line of credit, and many people do not have an alternative to pay off this line of credit.? People owe 1.24 trillion in credit card debt, and this number is expected to rise. It is almost 6% above what the credit card debt was a year ago. People are putting vital purchases that they need for their household on their card because they cannot afford to pay out of pocket. But as a result, they have this massive amount of debt that they cannot pay off without using other credit cards. It is a vicious cycle of borrowing and spending.? Car loans balances rose by $10 billion and are now $1.63 trillion. All of the necessities of life that are facilitated by debt are going up. However, student loans balances have decreased.

The Federal Reserve has targeted an inflation rate of 2% or less as the optimal inflation rate for the country. We have not seen an inflation rate of 2% or less since 2021, which is a period of more than 3 years. We need sound fiscal policy from the federal government that matches the monetary policy that the Federal Reserve is enacting. The Federal Reserve is doing its hardest to get short term interest rates under control. When the Federal Reserve can get short term interest rates under control, it can give people the confidence so that longer term interest rates can be effectively dealt with.

The Federal Reserve has also started to reduce the securities holdings on its balance sheet. For those who do not know, the securities holdings on its balance sheet are the assets which the Federal Reserve holds, and it has the discretion to determine whether or not to sell them or to keep them. They have decided to keep adequate reserves to keep the economy going but to not have an excess of reserves that would be too costly to maintain. The securities in the Federal Reserve’s balance sheet would be given the opportunity to decrease gradually over time. This is better than a dramatic decrease that would negatively impact the economy. ?The Federal Reserve is selling off debt instruments like Treasury notes and mortgage-based securities. The liabilities that the Federal Reserve have, like currency will increase. The cumulative effect of currency and electronic liabilities are more than 90% of the Fed’s financial obligations. =????????? The government has been dipping into the strategic petroleum reserve to help to offset an impending economic crisis. The strategic petroleum reserve is the world’s largest supply of crude oil, and it is meant to be used in dire times like war and famine. It was meant to ensure that no matter what goes on in the world, Americans would have access to a supply of petroleum. Right now, much of our energy needs are from petroleum, and a world crisis that would cut off this supply would be devastating for the United States.

?Currently we have a capacity of 714 million barrels in the Strategic Petroleum Reserve. The government has released 1 million barrels of gasoline in order to relieve the pain at the pump. The trouble is, the pain at the pump is still there. Gas prices are at an average price of $3.44 per gallon, and this is higher than the gas price of $2.42 per gallon that were there in 2021. The releasing of the 1 million barrels will help a little bit, but it is far too little to meet the needs of America. The solution is to tap into the resources that we have in order to access petroleum. This will help gas prices to go down and help our economy become stronger.

The Federal Reserve is doing its part to combat the financial malaise of this country. It is time for the federal government to step up and help to create a strong economy. When I am elected your Congresswoman I will support fiscal policy to facilitate a strong economy, cut down on gas prices, and relieve the pain at the pump.

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