The Federal Reserve’s decisions often make headlines, but their effects reach into the daily lives of consumers in several ways.
Dr. Jason Delaney, professor of economics at Georgia Gwinnett College, explained that the Federal Reserve has a dual mandate: to keep unemployment as low as possible and maintain inflation at a target rate of 2%.
“The unemployment rate measures the percentage of the workforce – people who are working or actively seeking work – who can’t find a job,” he said. “The Fed also considers other indicators, most notably ‘discouraged workers,’ or people who have stopped looking for work altogether.”
When addressing inflation, Dr. Delaney noted that the Federal Reserve mainly uses the core personal consumption expenditures (PCE) index. “This measure excludes volatile prices like food and energy,” said Delaney. “The Fed is looking for a stable, long-run inflation rate rather than short-term price swings.”
For many consumers, changes in interest rates are where they feel the Federal Reserve’s influence most directly. “The challenge with using monetary policy to improve affordability is that it mostly shifts what is expensive,” Delaney said. “Higher interest rates raise the cost of borrowing – making homes, cars and credit card debt more expensive. Lower rates make borrowing cheaper, but they can also drive up prices for everyday expenses like rent, food and services as spending increases.”
Delaney emphasized that lasting improvements in affordability come from productivity gains driven by investment rather than monetary policy alone. “Both historical data and economic theory show that productivity gains driven by investment are what improve affordability over time,” he said. “The Federal Reserve’s ability to directly increase productivity through monetary policy is very limited.”
He added that broader economic growth depends on private-sector innovation and public investment. “If we want to improve real affordability, the tools aren’t primarily monetary,” Delaney said. “We need private-sector innovation and public investment in areas like infrastructure, research and transit – the kinds of improvements that raise productivity and expand what the economy can produce.”
Historically, periods such as the Industrial Revolution (1865-1900), which saw advances in coal production, steel manufacturing and railroad expansion; the Roaring ’20s with electrification and mass production; and later booms driven by computing technology have all contributed to significant U.S. economic growth.
Looking ahead, Dr. Delaney suggested that future economic progress may depend less on interest rates set by the Federal Reserve and more on choices about national investment in innovation and resources.
