HOW MUCH? - interest rates

Interest rate changes.


The main factor influencing interest rates is inflation. When the growth of the economy is too strong (fast) inflation increases, and when the economy doesn't’t grow fast enough, inflation decreases.

The Federal Reserve changes the interest rates accordingly to either lower inflation and slow the economy, or to give it a boost. Higher inflation is always associated with economic growth, since there is more demand for goods and services, which causes price increases of those goods and services.

Different interest rates.

There are many different interest rates, and they don’t always have to change at the same time. The most important ones are:

Federal Funds Rate – the interest that banks use to charge each other.
Prime rate – offered by banks to their “very good customers.”
Treasury bill rates – the interest paid by the U.S. government on its short term instruments used to finance its debt.
Treasury Notes and Bonds – long term instrument rates used to finance government’s debt.
Six month CD rate – interest paid to an average person when they invest in a six month Certificate of Deposit.

Economic data and interest rates.

Many economic events have an impact on inflation, thus indirectly affecting the direction in which interest rates move. The most important are:

Inflation rises when:
The Consumer Price Index goes up.
Durable goods orders increase.
The Gross National Product rises.
Production rises.

Inflation goes down when:
Unemployment rises.
Business inventories go up.
Price of the Dollar rises.

Interest Rates
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Other factors that influence rates.

The simple law of supply and demand has enormous impact on interest rates of particular products like mortgage loans or credit cards. The rates of credit cards have remained high, even though other interest rates are still very low. This is due to the high demand for this type of credit.

See also: interest rate changes, rollover 401k, 401k investments options, Roth IRA, credit card rates




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