THE IMPLICATION OF HIKED RATES
Uploaded by keter12 on Feb 05, 2016
The Implication of Hiked Interest Rates
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The Implication of Hiked Interest Rates
The whole of this year has been characterized by speculations regarding the Federal Service’s Open Market Committee’s annunciation of the new increase in interest rates. The last time they were increased was in 2006, when the country’s economy was on course. As a rule, such changes occur at the time when the country’s economy is in a good state, with a steady increase in the employment rate and more jobs are being created. Economists have been quick to speculate that there was no better a time than this. For instance, there has been an increase in annual gross income for employees with more job creation opportunities. Before the end of this week, the Federal Reserve is expected to announce the new interest rates (Soergel, 2015). As any other economic tendency, it comes with its advantages and shortcomings to the saver and the borrower alike. Thus, it is necessary to analyze the effect such changes will have on various sectors of economy.
Impact on the Stock Market
The interest rate is the cost paid by the banks when borrowing from the Federal Reserve (Mueller, n.d.). It controls inflation by regulating the amount of money circulating in the economy and thus stabilizing the effects of demand and supply. Thus, the organization determines the amount of money available for goods on the market at any time (Mueller, n.d.). Consequently, an increase in Federal Reserve lending rate has a ripple effect on banks, which spreads to businesses and individuals as well (Mueller, n.d.). Most American retirees depend on interest rates on their savings (which are very low) for survival, and a hike in banking lending rates will be favorable (Soergel, 2015). However, the good news does not favor banks and brings with it the unintended consequences that cannot be avoided by the Federal Reserve. The organization is going to introduce the hiked interest rates gradually, but many banks will do the same quite fast since they already have a large reserve and do not need to increase interest rates to add more resources (Soergel,...