By Renee Haltom – Econ Focus, Federal Reserve Bank of Richmond
The Federal Reserve, despite being one of the nation’s most important financial regulators, sometimes intentionally encourages investors to take on risk.
That’s a key function of monetary policy after a recession. Fed Chairman Ben Bernanke has called it “a return to productive risk-taking.” When the Fed lowers the federal funds interest rate, its main policy instrument, other market rates tend to fall, making it more attractive for entrepreneurs to raise money for startups and for existing businesses to expand capacity. That’s one way low interest rates help to spur economic recoveries.
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