Part 8/11:
Inflation and unemployment together shape the Fed’s policy decisions, summarized by the spread between unemployment and inflation rates. When inflation is high and unemployment low, the Fed tends to raise interest rates; when inflation is low and unemployment is high, it cuts rates to stimulate growth.
In recent years, inflationary pressures have kept interest rates elevated, preventing the Fed from aggressively easing. However, commodity prices—particularly oil—are now trending downward, reducing inflationary risks. This suggests the Fed could lower interest rates in the coming months, providing relief to the economy but with potential long-term consequences.