Interest rates are a fee that lenders charge borrowers for lending money. For example, homeowners are charged an interest rate on the mortgage they take from a bank.
Interest rates fluctuate based on a number of key factors, of which two of the most important are inflation and the Board of Governors of the Federal Reserve. The Federal Reserve determines the interest rate charged between financial institutions via the federal funds rate, which is the key interest rate charged by commercial banks to other banks borrowing money, typically overnight.
By controlling interest rates, the Federal Reserve can control inflation in times of economic growth. The Federal Reserve can also modify interest rates to inject stimulus during an economic slowdown, as it did during three rounds of quantitative easing starting in late 2008.
By increasing interest rates during a period of economic growth, the Federal Reserve discourages borrowing. When interest rates are high, businesses and individuals generally take more time to consider the high cost to borrow before borrowing and spending.
By contrast, when the economy is underperforming, lowering the interest rate makes it cheaper for businesses and consumers to borrow. As a result, in theory, they spend more and stimulate economic growth.
By changing interest rates, central banks essentially change the demand for money. When the Federal Reserve pegs interest rates lower, the monetary policy is expanding—meaning money is cheaper. When interest rates are raised, it makes money more expensive and slows the rate at which the prices for goods and services increase.
The Last Time This Happened, High-Yield Bonds Crashed 20% Today’s chart highlights a brewing problem in the fixed-income market…high yield bonds. High yield bonds get issued by shaky businesses with less-than-stellar prospects. For this reason, traders nickname them “junk.” Because.
Best Bond Funds for Rising Interest Rates With interest rates gradually increasing, how are bond funds going to react? The focus of this article will be on the potential best bond funds for rising interest rates. For income investors, the.
Who Else Wants More Retirement Income? One question I get a lot from readers concerns retirement income: “Robert, saving accounts pay out next to nothing. Bank CDs yield less than one percent. Where can I earn a safe income on .
How Safe is Your Portfolio From Rising Interest Rates? One of the most common questions that family and friends ask me concerns higher interest rates: “Janet Yellen could tighten policy. That will pull a lot of hot money out of.
More Interest Rate Hikes in 2017? Last month, the U.S. Federal Reserve raised its benchmark interest rates for the first and only time in 2016. Now, with the minutes of their December meeting released, investors can get a better idea.
Federal Reserve News Shakes Markets In the latest U.S. Federal Reserve news, Fed Chair Janet Yellen increased interest rates on Wednesday. The new target will go to 0.50%–0.75%, up from 0.25%–0.50%. The Federal Open Market Committee also approved an increase.
Rising Interest Rates Good News for Savers, Not for Borrowers Based on the smoke signals from Washington, investors should brace themselves for rising interest rates. The Federal Reserve is expected to strike a hawkish tone when it meets this week..
Treasury Bond Yields Soaring Bond yields soared after few buyers showed up for a Treasury action on Monday, which some traders say could be a bad omen for fixed-income investors. Investors were overwhelmed by the large government issue of three-year.
Should Income Investors Worry About a December Interest Rate Hike? For the most part, 2016 has been a good year for the U.S. stock market. There were quite a few unexpected events, but they did not prevent the U.S. stock.
10-Year Treasury Yield Up One Percentage Point Since July With indications of a strong economy and an expected rate hike in December, interest rates are surging. The yield on the benchmark 10-year Treasury note rose as much as 12 basis.