Core Interest Rate
Near the outset of Joe Biden's presidency in early 2021, the Federal Reserve predicted that the nation's core interest rate in 2023 would be 0.1%. What did it turn out to be?
Correct Answer
One of the most important functions of the Federal Reserve is influencing the Federal Funds Rate. The media often calls this "interest rates," but it is actually the rate at which banks lend each other money for short-term loans. This rate has wide-ranging ripple effects on many other interest rates in the U.S. economy. In March 2021, the Federal Reserve predicted that this interest rate would be 0.1% in 2023. However, the Fed failed to anticipate the inflation that would be caused by its decision to create trillions of dollars in new money, despite the fact that such actions have spurred inflation throughout history. To quell this inflation, the Fed raised its core interest rate to 5.02% in 2023, or 50 times higher than its 2021 prediction. This has increased the costs of mortgages, car loans, and many other interest rates. It also contributed to the collapse of Silicon Valley Bank. Biden bailed out SVB's depositors, who were heavily left-leaning and Chinese clients.