Federal Funds Rate Increase Paper
Christine Hicks
Professor Thaddeaus Mounkurai
ECO2013 -Principles of MacroEconomics
8/5/15
Federal Funds Rate Increase
According to our textbook in Chapter 12, the federal funds rate is "The interest rate financial institutions charge each other for overnight loans used as reserves. A change in the federal funds rate reflects changes in the market demand and supply of excess reserves."
I found the best explanation of the federal funds rate at http://www.investopedia.com/terms/f/federalfundsrate.asp. Investopedia defines it as "the interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The federal funds rate is one of the most influential interest …show more content…
On the surface it would appear that it only affects those institutions that are loaning overnight to each other, but, it really is farther reaching than that and effects our American economy on all levels and also affects the worldwide economy.
In "What Two Fed Rate Hikes Could Mean For Markets" by Jenny Cosgrave published at http://www.cnbc.com/2015/07/28/what-two-fed-interest-rate-hikes-could-mean-for-markets.html on 7/28/15 it says that most economists think the first U.S. Federal Reserve rate rise is leaning towards September, and there are a number of officials from the central bank have already suggested that two rate rises are possible this year, something that many economists and investors are in favor of.
Paul Glover, global economist at UBS investment bank believes that there will be two rate hike this year because inflation is picking up in the U.S.. Earlier this month, San Francisco Fed President John Williams said his preference would be for two rate hikes before the end of the year. Meanwhile, Fed governor Jerome Powell also said he was prepared to raise interest rates twice this year in September and December as long the economy continues to perform as expected. The Fed has kept interest rates near zero since late …show more content…
Mortgage rates will rise, which is a big deal if you're applying for a new home loan or have a variable-rate mortgage. This could hit first-time buyers especially hard. A one percent interest rate increase can increase the cost of a $100,000 mortgage by over $700 a year. Other loans also will be more expensive, so whether you're financing a new car or carrying a balance on your credit card, it's going to cost more. Rising interest rates may also lead to a decline in home prices, so sellers will want to factor that into their plans. And, as borrowing costs go up, people tend to buy less, which affects businesses in
Professor Thaddeaus Mounkurai
ECO2013 -Principles of MacroEconomics
8/5/15
Federal Funds Rate Increase
According to our textbook in Chapter 12, the federal funds rate is "The interest rate financial institutions charge each other for overnight loans used as reserves. A change in the federal funds rate reflects changes in the market demand and supply of excess reserves."
I found the best explanation of the federal funds rate at http://www.investopedia.com/terms/f/federalfundsrate.asp. Investopedia defines it as "the interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The federal funds rate is one of the most influential interest …show more content…
On the surface it would appear that it only affects those institutions that are loaning overnight to each other, but, it really is farther reaching than that and effects our American economy on all levels and also affects the worldwide economy.
In "What Two Fed Rate Hikes Could Mean For Markets" by Jenny Cosgrave published at http://www.cnbc.com/2015/07/28/what-two-fed-interest-rate-hikes-could-mean-for-markets.html on 7/28/15 it says that most economists think the first U.S. Federal Reserve rate rise is leaning towards September, and there are a number of officials from the central bank have already suggested that two rate rises are possible this year, something that many economists and investors are in favor of.
Paul Glover, global economist at UBS investment bank believes that there will be two rate hike this year because inflation is picking up in the U.S.. Earlier this month, San Francisco Fed President John Williams said his preference would be for two rate hikes before the end of the year. Meanwhile, Fed governor Jerome Powell also said he was prepared to raise interest rates twice this year in September and December as long the economy continues to perform as expected. The Fed has kept interest rates near zero since late …show more content…
Mortgage rates will rise, which is a big deal if you're applying for a new home loan or have a variable-rate mortgage. This could hit first-time buyers especially hard. A one percent interest rate increase can increase the cost of a $100,000 mortgage by over $700 a year. Other loans also will be more expensive, so whether you're financing a new car or carrying a balance on your credit card, it's going to cost more. Rising interest rates may also lead to a decline in home prices, so sellers will want to factor that into their plans. And, as borrowing costs go up, people tend to buy less, which affects businesses in