The Federal Reserve's control of interest rates can significantly affect the value of the dollar. When the Fed lowers interest rates, it encourages borrowing and investment, which can stimulate economic growth. This increased economic activity can lead to inflation, which reduces the value of the dollar. Conversely, when the Fed raises interest rates, it discourages borrowing and investment, which can slow economic growth. This decreased economic activity can lead to deflation, which increases the value of the dollar.
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The Federal Reserve was created to help control inflation and deflation in the economy. It does this by regulating the interest rates of borrowed money, which alters the amount of capital that flows throughout the economy. Economic growth is stimulated when interest rates are lowered because corporations are more incentivized to borrow money for investment purposes when the money is cheaper. Alternatively, when prices rise too high, too fast, The Fed will raise interest rates to offset borrowing and slow the rising inflation costs.