How Interest Rates Affect Your Wallet

What Happens When Rates Rise? All interest rates tend to move together; therefore, the interest on your banking account goes up but it gets tougher to barrow money for things like houses and automobiles Also it gets harder for companies to barrow money if they have to spend more on paying out interest, which can conceal growth Lastly, it can also be used to hedge inflation so the Federal Reserve can conceal unwanted growth bigdatapresentation.blogspot.com gainspainscapital.com

Inflation and Its Affects on the Economy Inflation lessens the purchasing power of currency due to higher and higher prices In the text book Macroeconomics: Private and Public Choice the authors covey that inflation is caused by “a nation’s rapid expansion” If inflation is left uncontrolled it will cause completely devalued such as the Zimbabwean One Trillion Dollar bill truthfrequencyradio.com

Is Inflation Risk A Huge Problem Today Both sides of the argument believe it is not a problem today, but economists at the Federal Reserve believe that “as unemployment continues to decline, a tighter labor market will start to send inflation higher”. While on the other hand financial analysts like Jim Cramer believe “deflation” is the real problem at hand with the volatility in key markets such as “auto and housing”. blog.syracuse.com

Domestic Market Volatility As stated in the prior slide the housing and auto markets have not fully recovered since the last recession Additionally, foreign oil producers have been manipulating prices downward to debilitate the U.S. oil market In an interview with a domestic oil analyst, Brian Kimbrough, he stated that this market posed a “huge economic and security risk” for the U.S. eqmcapital.com

Foreign Market Volatility China is the United States’ largest trading partner and monetary lender They have seen a recession in the last few quarters of this year, which according to Citi Group economist Fred Imbert could cause a “massive global recession”. chinaflag.facts.co

Potential Negative Outcomes The global and domestic market volatility would make it a bad time to raise interest rates because it bogs down economic growth, which could lead to a prolonged recession Financial analyst for thestreet.com Deena Zaidi believes it will cause a “fall in demand in the housing market, which will adversely affect the flooring, plumbing, and appliance markets also”.

Potential Positive Outcomes Some financial analysts, like the Wall Street Journal’s Morgan Housel, believe that “history shows that stocks can rise considerably during periods when the Fed is tightening credit” Also, an interest rate rise will strengthen the banking and lending sector due to increase a key profit driver: net interest margins

Work Cited Slide 3: Sobel, Russell S., Keri M. Cowan, and James D. Gwartney. "Chapter 8: Economic Fluctuation, Unemployment, and Inflation." Macroeconomics: Private and Public Choice. 15th ed. Stamford: Cengage Learning, Print. Slide 4: Leubsdorf, Ben. "Yellen's Inflation Lecture More Than Just an Exercise for Fed." Fox Business. Fox News, 24 Sept Web. 05 Oct Slide 4: Cramer, Jim. "Mad Money." Mad Money. CNBC. New York, New York, 5 Oct Television. Slide 5: Kimbrough, Brian. interview. 12 Oct Slide 6: Buiter, William. "Economist: China Situation Spells Global Recession." Interview by Fred Imbert. CNBC.com. CNBC, 9 Sept Web. 11 Oct Slide 7: Zaidi, Deena. "A Fed Rate Hike Would Mean Good, Bad and Ugly Outcomes, All at Once." The Street. N.p., 09 Sept Web. 05 Oct Slide 8: Housel, Morgan. "Why Stocks Could Thrive if the Fed Raises Interest Rates." Wall Street Journal - Eastern Edition 03 Jan. 2015: B7. Academic Search Complete. Web. 5 Oct. 2015