Interest rates, the additional cost of borrowing money from a lender, heavily influence the state of the economy. In the United States, the central bank (Federal Reserve) sets the interest rate that banks use to determine the annual percentage rates offered to borrowers. The connections between interest rates, inflation, and crime rates presents a complex relationship that is essential in the understanding of the national economic climate.
High interest rates lead to more expensive borrowing costs, so that consumers turn away from making big purchases such as homes or investments. This reduction in spending, while necessary to control inflation, ultimately, causes economic growth to slow down. The Federal Reserve sets higher interest rates to control the rate of inflation. This concept was displayed in past years with multiple rate hikes throughout 2022 and 2023. Recognizing high interest rates were causing economic strain, the Fed has recently began cutting rates. In September there was a 50-basis point to begin a soft landing, with more small cuts expected to follow.
The economic landscape becomes more intricate when considering the societal impact of inflation and unemployment—both influenced by interest rate changes. Inflation raises the cost of living for all people, disproportionately affecting low impact families, and some might resort to illicit activities to maintain their lifestyle. Historically, inflation began to rise in the mid 2010's and so did the rates of violent crime. The government tries to control inflation by raising the interest rate, suggesting a correlation between economic pressures and crime.
Interest rates, when raised too quickly, also contribute to an increase in unemployment. As borrowing costs become more expensive, consumer demand decreases, causing businesses to scale back on production and make cuts to their workforce. Studies indicate that this reduction in employment can worsen crime rates, as shown when there is a rise in criminal activity during periods of low employment, particularly among the unemployed.
Public concern towards crime has grown during Joe Biden’s presidential term: the percentage of American adults that view deescalating crime as a governmental priority has grown from 47% in 2021 to 58% in 2024. The 2024 Presidential Election is coming up this November and candidates: Kamala Harris and Donald Trump, have different spending plans to tackle inflation and improve living costs. Their approaches highlight the interconnected issues of the economy and public well-being.
In conclusion, the complex relationship between interest rates and their consequences shapes the goals for monetary policy. As the government makes efforts to balance keeping inflation under control and supporting economic growth and societal welfare, the effects ripple through society, influencing crime and public perception. Understanding these connections is crucial for assessing the current economic environment and directing future policy.
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