The Federal Reserve sets the interest rate, presumably based on a number characteristics and trends in the economy: inflation, GDP growth, population growth, unemployment, housing prices, etc.

However, the decision-making process is opaque, and a few insiders might have better access to it than other market participants. Perhaps the decisions are using some mathematical models and ideas from optimal control? Or perhaps they are driven by some haphazard political considerations? Perhaps they are optimizing for future US GDP, or perhaps they are optimizing for the banking sector profitability?

Why isn't the Federal Reserve interest rate set by a published algorithm, giving it total transparency and predictability?

  • 2
    $\begingroup$ ...are you aware that economic forecasting is not a solved problem? Meaning that there is no closed formula using some well-known indicators to tell us next years inflation rate, unemployment rate, etc? $\endgroup$
    – Giskard
    Sep 30, 2021 at 16:18
  • 1
    $\begingroup$ @Giskard Heck there is no well known indicator to tell us this year’s unemployment, inflation etc… most stats are provided with at least 2-3 month lag or are forecasts $\endgroup$
    – 1muflon1
    Sep 30, 2021 at 17:23


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