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.
RELATED: Economic Impacts Of Inflation And Rising Interest Rates
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.
5 Factors Impacting Interest Rates
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 businesses, 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 possible, 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, too, 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 relative, 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 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 – knowledgeable citizen, and consumer?
