US Raises Rates First Time In 8 Years!

[Economy 53,076]

http://www.theguardian.com/business/live/2015/dec/16/federal-reserve-us-interest-rates-janet-yellen-live

 

Janet Yellen and her Comittee at the Federal Reserve finally voted for the first increase in interest rates in over 8 years!

 

the increase was 25 basis points or 0.25%. This raises the target rate from 0.25% to 0.5%

 

Janet Yellen says the labor market is now tightning and higher rates are therefore appropriate to keep inflation and imbalances in check. Further rate hikes next year are expected!

[Brainiac 11,171]

I don't understand anything about the Federal Reserve or the economy for that matter so is this a good thing? lol. and what does it mean?

[Sylvanas 5,768]

Was just talking about this with my Financial Algebra teacher, interesting to see! 

[Economy 53,076]

22 minutes ago, Brainiac said:

I don't understand anything about the Federal Reserve or the economy for that matter so is this a good thing? lol. and what does it mean?

It involves a very complex series of dynamics but to put it simply so you can understand...

 

when the economy is weak, interest rates must be dropped. This increases credit flow, borrowing, investment and helps increase inflation which tends to be low when the economy is weak

 

when the economy is strong and consumer confidence rises, demand goes up and so does borrowing and inflation. Higher rates prevent eccessive borrowing, too much inflation. Basically it prevents bubbles

 

A Countries Central Bank (in the US its called "Federal Reserve") lends money to private banks at a certain interest. This is how Central Banks influence credit costs for mortgages, car loans etc even though they dont fully dictate what private bank rates will be

 

When the economy is weak rates must be low and when economy strengths rates must rise to stay stable. Central Banks adjust the rate they lend to private banks at up and down to try and influence market rates to an appropriate level

 

The US economy is getting stronger so low rates will become harmful if left low too long so they are starting to raise them back up. Failure to raise rates as the economy strengthen will resukt in bubbles and high inflation

[Brainiac 11,171]

18 minutes ago, Economy said:

It involves a very complex series of dynamics but to put it simply so you can understand...

 

when the economy is weak, interest rates must be dropped. This increases credit flow, borrowing, investment and helps increase inflation which tends to be low when the economy is weak

 

when the economy is strong and consumer confidence rises, demand goes up and so does borrowing and inflation. Higher rates prevent eccessive borrowing, too much inflation. Basically it prevents bubbles

 

A Countries Central Bank (in the US its called "Federal Reserve") lends money to private banks at a certain interest. This is how Central Banks influence credit costs for mortgages, car loans etc even though they dont fully dictate what private bank rates will be

 

When the economy is weak rates must be low and when economy strengths rates must rise to stay stable. Central Banks adjust the rate they lend to private banks at up and down to try and influence market rates to an appropriate level

 

The US economy is getting stronger so low rates will become harmful if left low too long so they are starting to raise them back up. Failure to raise rates as the economy strengthen will resukt in bubbles and high inflation

thanks that was really helpful! I understand it now. 

[Economy 53,076]

12 hours ago, Brainiac said:

thanks that was really helpful! I understand it now. 

Yourwelcome