The article mentions how the Federal
Reserve officials have said that there is a chance that they increase increase
rates. Unemployment is expected to rise which in turn could increase inflation
which would force the Federal Reserve to hike up the rates.
The
Federal reserve predicts that this increase would probably be around March. I
think that this increase would effect the cost of borrowing. With higher
interest rates payments on credit would be more expensive which in turn would
decrease consumption. Moreover, there would an increase in saving rather than
spending. The expectation of interest rates rising would in turn make people
spend a lot, increasing consumption until the hike in interest rates is
actually implemented. Consumer confidence will also decrease because a hike in
interest rates does not promote investment or purchases. High interest rates
would decrease consumer spending an investment which will cause Aggregate
Demand to fall leading to a decrease in economic growth and as the article mentions,
higher unemployment.
It will
be interesting to see if the Federal Reserve actually follows through with this
expected hike in interest rates.
Link: http://www.bbc.com/news/business-39059743
5 comments:
Based of a similar reading, futures markets on Monday expected the Federal Reserve to remain on hold at its upcoming meeting in March, with an 82.3 percent probability that the benchmark interest rate would remain at its current level of 0.5 percent to 0.75 percent. Investors saw a greater likelihood of a rate hike in May or June. From the testimony of Janet Yellen, she said it would be “unwise” to wait too long to hike rates and indicated that the Fed would carefully watch to see whether inflation accelerates in months to come. It'll be interesting to see If the increase in interest rates are timed "wisely" as indicated by Janet's Yellen's testimony.
Yeah, I would hope the the Federal Reserve would follow through with an increase in the interest rate if they propose it. It seems that these announcements cause a built in adjustment from the economy, so when the interest rate is actually implanted people act accordingly. It seems wise considering the economy is doing pretty well to tighten our belts a little bit and to have an increase in the rate.
Economists had talked about how raising the interest rate would impact on the market. However, the Fed’s decision can affect the cost of housing, cars, student loans and even the interest on your credit card. Even though the effect might not right away. And when the Fed raises rates, all sorts of other expenses eventually tick up. However, because the rate has been close to zero since 2008 for the purpose of bringing the economy out of recession, there’s not really anywhere to go but up.
The raising of interest rates could effect the way companies grow because they are not going to want to do these big projects if the interest rates are high because they will have to pay more. if this is true this would hurt the economy because there would slow down the growth of the economy. it will be interesting to see what they do with the interest rates
It will be interesting to see how production is affected if the rates rise and jobs are created that the POTUS is promising. Anyways, like Sam said, I think it is a good idea to implement the raise in the rates to keep order and conformity in economic habits.
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