How do the actions of the Federal Reserve affect U.S. business decisions?

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pohnpei397 eNotes educator| Certified Educator

The actions of the Federal Reserve have a significant impact on the overall health of the economy.  Because of this, US businesses will look at the actions of the Federal Reserve and try to predict how those actions will affect the decisions they need to make.

For example, if statements from the Federal Reserve indicate that the Fed may raise interest rates in the near future, businesses might act to borrow money in the short term so that they can benefit from the lower rates.  Conversely, a pending increase in interest rates might convince some businesses that the money supply will contract, leading to less consumer spending.  This might cause them to put off expansion or hiring.  Either way, businesses have to be aware of the impact that Fed actions can have on the economy and try to make decisions accordingly.