Dear Sophia Smith,

There are usually strong correlations between the change in the level of interest rates shaped by central banking, interest rates on deposits and loans offered by commercial banks, financial instruments offered by investment banks, the cost of money lent in the form of loans, interest rates on bonds, etc., and the level of credit for economic activities and investment projects carried out by economic entities, including companies and enterprises in the SME sector. The Fed, like any central bank in shaping monetary policy, when deciding whether to change interest rates, does not take into account only its basic function of taking care of the value, stability of the national currency, including the analysis of the situation regarding inflation and exchange rates. Further determinants of the formation of monetary policy also include the issues of the relationship that occurs between the change in the level of interest rates and the macroeconomic situation of the economy with particular regard to the rate of economic growth, the situation in the labor markets, the level of credit for economic activities, the situation in the real estate markets, the level of credit for real estate purchase transactions using mortgages and sometimes the situation in the capital markets, etc. In the country where I operate, the situation is very similar to that in the U.S. in terms of the formation of monetary policy by the central bank. After the Covid-19 pandemic, when inflation rose strongly from 2021 (due to the introduction of a large amount of printed money into the economy during the pandemic) it was central banks that raised interest rates. When inflation began to fall rapidly in early 2023 and after a few months fell to near the central bank's inflation target it was central banks that did not rush to cut interest rates to pre-pandemic levels as if fearing the occurrence of another economic crisis. In addition, central banks increased their gold reserves, which was one of several factors determining the increase in the price of an ounce of gold over the past few quarters by more than 30 percent. Investors operating in the stock markets since inflation fell to levels close to the central bank's inflation target have been waiting for a significant reduction in interest rates, which could further revive economic processes and have a positive impact on stock market prosperity on the stock exchanges. However, stock valuations on these exchanges and stock index levels were high, including historic highs. This could have been interpreted as a high level of risk amid geopolitical uncertainty, an increase in the risk of political and military tensions in some regions of the world, the risk of rising commodity prices whose valuations have been low lately, the situation of imposed additional tariffs on imported goods, still ongoing trade wars between the world's largest economies, still not fully rebuilt international supply and supply chains broken during the Covid-19 pandemic. Besides, the largest central banks in the process of taking care of the value and stability of money also take into account analogous situations and similarly conducted monetary policies of other central banks representing large economies with a view to the issue of influencing the formation of exchange rates. When central banks and investment banks undertake transactions on a larger scale in the international financial markets (using certain securities) and in the foreign exchange markets (using their reserves of other currencies) then the issue of influencing the formation of exchange rates is of particular importance. Consequently, the result is certain levels of interest rates, which translates into the cost of borrowed money, including oproc. bank loans, which as cheaper are more available or as more expensive are more difficult to access for business entities, including companies and enterprises in the SME sector. I invite you to read my articles on the monetary policy of the FED and ECB, the development of the 2008 global financial crisis, the 2020 pandemic economic crisis, the 2022 energy crisis, the change in the level of inflation after the Covid-19 pandemic, the determinants of the development of economic and financial crises, the interventionist anti-crisis measures taken by the government within the framework of certain economic policies, and the effects of these measures and the role of central banks in the context of the mentioned macroeconomic processes. I invite you to join me in scientific cooperation,

Kind regards,

Dariusz Prokopowicz