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As inflation rises, purchase power falls every dollar buys a smaller percentage of that good or service.
Interest Rate Cuts
When the federal funds target rate is reduced, interest rates get cut.
The Fed rate is important because many other rates follow this rate closely.
Low rates are great for consumers in the market for a new house or car they encourage borrowing.
If rates are too low, they can cause excessive growth, which can lead to inflation.
Inflation erodes purchasing power and can lead to unsustainable economic expansion.
Rate increases impact consumers' wallets, depending on how dramatic the increase is.
Target Rate vs. Prime Rate
The Fed’s target rate is for bank-to-bank lending.
The prime rate is the base rate banks charge consumers.
Since then, interest rates have stayed low and the economy has showed slow signs of improvement.
Still, retail sales growth was slow and new housing construction fell in October.
The Fed lowered growth expectations for the remainder of 2014 and kept the short-term interest rate near zero.
The labor market still has too much slack and the inflation rate is too low…
The consensus is that lift-off will take place around the middle of next year.
That seems like a reasonable view to me."
She has repeatedly stated it all depends on how the economy performs.
What does this all mean?
The averageInterest Rates Will Rise, So What’s a Prospective Homeowner to Do?
