Interest Rates
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.
IMF Economists: ECB Should Now Focus on QE
Rate Cuts Could See Diminishing Returns New York, NY — It has been over two years since the European Central Bank (ECB) adopted a negative interest rate policy. Now, two economists at the International Monetary Fund (IMF) are saying that.
U.S. Bond Prices Gain On Interest Rate Speculation
Treasury Sells 10-Year Bonds at Second-Lowest Yield on Record New York, NY — U.S. government bond prices rose Wednesday as a sale of 10-year Treasury notes experienced a strong demand, courtesy of foreign investors. The Treasury Department sold $23 billion.
U.S. Productivity Falls for Third Quarter
Pace of Productivity Key Factor in Economic Growth New York, NY — Nonfarm business sector labor productivity decreased at a 0.5% annual rate during the second quarter of 2016, the U.S. Bureau of Labor Statistics reported today, as output increased.
Analyst: Japanese Bond Market is a “Must Watch” for U.S. Investors
10-Year Japanese Government Bond Yielding -0.09% New York, NY — With increased uncertainty around the world, it’s not really big news that some foreign government bonds are yielding negative. However, several analysts recently pointed out how yields on Japanese government.
Spanish 10-Year Bond Yields Trade Below 1% for the First Time
Monetary Easing Speculations, Political Progress Fuel Rally New York, NY — Spanish government bonds rose today, taking the yield on the benchmark 10-year debt below one percent for the first time. The rally is fueled by the monetary easing expectations.
U.S. Government Bond Yields Stabilize on Monday
10-Year Treasury Note Now Yields 1.585% New York, NY — Yields on U.S. government bond yields stabilized, following a big rally on Friday. Just over a month ago, U.S. Treasuries were among the hottest assets on the market. As the.
U.S. Dollar Rises, Bonds Fall on Strong Job Growth
Bullish Job Report Fuels Rate Hike Expectations New York, NY — The U.S. dollar rose and government bonds fell as the July employment report pointed to a solid labor market, potentially giving the Federal Reserve a little more room to.
BoE Cuts Rates to Counter Brexit Economic Impact
Central Bank Also Cuts Growth Forecast New York, NY — The Bank of England (BoE) cut its benchmark interest rate to a new low on Thursday and said it would buy government and corporate bonds as part of easing efforts.
U.S. Bond Yields Fall After Bank of England Rate Cut
Treasuries Become Attractive Amid Slowing Growth New York, NY — U.S. Treasury yields fell on Thursday, with some short- and medium-term issues hitting their lowest levels in more than three weeks, after the Bank of England cut interest rates for.
U.S. Consumer Confidence Weakens in July
Slowing Economy, Brexit Weigh on Sentiment New York, NY — Consumer sentiment weakened in July as Britons’ decision to leave the European Union and the economy weighed on most Americans, according to a University of Michigan survey. The University of.
