federal reserve

8 ways the Federal Reserve's interest rate decisions affect your life

Influencing the prices you pay
Influencing the prices you pay © iStock

Influencing the prices you pay

The Fed's actions indirectly have an impact on the prices you pay at the grocery store, gas pump and other retail outlets.

That's because the cost and availability of money affect people's willingness to pay for goods and services. When money is cheap and plentiful, there's more demand and prices tend to rise.

"When the economy's doing really well and the labor market is good and the unemployment rate is falling, that's when you have concerns about employers hiring and bidding up wages and inflation rising," Faucher says.

It's easier to stop inflation than it is to break out of a deflationary cycle, says Ara Oghoorian, a CFP professional in Los Angeles who previously worked for the Fed as a bank examiner.

Amid recent weak inflation, the Fed has kept rates low to prevent a repeat of the "lost decade" of stagnant economic growth in Japan when prices fell and people delayed purchases in hopes of cheaper prices, causing prices to fall even further.

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