by Vibhu Vikramaditya
As the Federal Reserve hikes its lending rate to a range of 0.25–0.50 percent, murmurs are heard around the world, with financial pundits predicting doom due to the increased pressures imposed on the cost structures of firms that are recovering from the pandemic lockdowns. The Federal Reserve is leader of the group of central banks around the world that are ostensibly directed by their respective countries to pursue stability and smooth functioning of their economies.
The alleged legitimacy of central banks rests on three fundamental goals that central banks around the world share. The first goal is price stability, which is the belief that central banks should expand and contract the money supply in relation to actual demand and supply pressures from the economy. Goal number two is fueling macroeconomic growth prospects, which is done through lowering the cost of borrowing, which supposedly leads businesses to increase their investments, leading to increases in output and overall growth.