We often read, or hear, a lot of information (some accurate), about interest rates, and some of the potential factors, which might, impact them, and how, they affect other things! Although, it sometimes, doesn’t appear, so, these rates, generally, are created, and exist, because of some conditions, or combinations, either, actual, or, perhaps, concerns/fears, etc. While, there are many things, which come into play, in this area, this article will focus on, 5 specific factors! Since, associated costs, and how, other key economic areas, may be related to these, this article will attempt to, briefly, consider, examine, review, and address, these, and why, they are important considerations.
1. Strengths/weaknesses of overall economy: Times, and conditions, are rarely, static, often, changing, evolving, and having different implications, from time to time! Depending on the specific strengths, and weaknesses, at any point, overall economic policy, and approaches, must be considered, and used, wisely, and in a relevant, sustainable way. Generally, historically, rates rise, when there is a fear of inflation, and drop, when, there appears, to be a need, to make the cost of borrowing, more affordable. For example, when rates are low, we usually, witness, a corresponding, drop, in mortgage costs, and, obviously, that would make housing costs, more affordable, and desirable, for most. When, the overall economy, is weakest, lower rates, often, help, to boost it, by encouraging, individuals, and business, to spend more, which puts, more money, into the economy!
2. Federal Bank moves: Often, the Federal Reserve Bank, uses interest rates, as a strategic approach, to addressing, either, present needs, and/or, future concerns, and possibilities! When, inflation seems to be a real risk, they, often, tighten the money supply, while, other times, they want to encourage, increasing the overall money supply, etc. Some consider these, as quality moves, while others, fear, sometimes, it is politically, motivated, manipulation!
3. Inflation/Recession concerns/balance: Sometimes, a degree of mild inflation, is possibly, desired/desirable, when/if, the money professionals/experts, believe it is needed, and/or, necessary! The Federal Rates, often, determine, items, such as: rates paid by banks to depositors (interest); rates banks pay to borrow; costs to corporations/companies, of money; etc. In addition, they trickle down, to, other elements of the economy, etc. One example is, when rates are low, it often, makes the stock market, more attractive, because it reduces competition, for quality investment alternatives!
4. Prediction/Confidence, in future: Often, fear/concern, for the future, determines policy! There is not always, a direct relationship!
5. Job market: If inflation, is under control, and the job market, is relatively, strong, it often, influences, policy, in this economic/financial area! There is often, an evaluation, of how any action, might create a reaction, both, in the short term, and in the longer one!
The more, we are familiar, with economic realities, the better, we might predict, the smartest course, of action. Will you commit to being, a more knowledgable citizen, and consumer?
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