Fed and Interest Rates

Federal Reserve and Interest Rates "Wall Street Journal" Dave Petti Journal "Money and Investment" section is posted on the first page and closes the daily column. If Mr. Petit's daily column headline is an accurate record of the economic problems and current problems of the business world, the interest rate is very high in late March 1994 and early April. "Interest rate of industrial stock is 32 points" and "Industrial stocks continue 13.53 points despite interest rate concerns." Why are you paying attention to interest rates?

Media headlines may give the impression that the Fed has "set" interest rates, but this is not completely accurate. What the central bank does is to set goals for federal funds rates. This is the interest rate that the bank receives from each other's loan. Then, the Federal agency uses monetary policy tools to raise and lower short term interest rates. In other words, fluctuations in the interest rates of federal funds will affect the wider interest rate environment. Short-term consumer interest rates tend to be consistent or directly related to federal fund interest rates. Therefore, changing the interest rate of the Federal Fund leads to a change in the interest rates of mortgage loans, auto loans and savings accounts

Interest rates are historically low, and 10-year government bonds are about 4%. However, interest rates are rising. In 2016, the Federal Reserve Board raised the interest rate only once, and found that the interest rate of the Federal Fund was 0.50%. The interest rate will rise in 2017 and the Fed is expected to raise interest rates 2 to 3 times. The decisions they make affect the dynamics of the financial system as a whole. A historically low interest rate related to history makes this element attractive to the 2017 stock market.

With the money markets and banks' control, the Fed has impact on interest rates, asset prices and credit flows of the financial system as a whole. Arbitrage transactions and competitive spreads will increase or decrease the interest rate if the Fed is directly controlling other markets. Even stock prices are very sensitive, bond yields decline as they rise, and rise when falling. Compared to money markets and short-term interest rates, the Fed has less control over bond yields and other long-term interest rates. Long-term interest rates are mainly determined by expectations of future short-term interest rates, and therefore expectations of future Fed policy. For example, the expected increase in future inflation or the increase in federal budget deficits will raise long-term interest rates compared to short-term interest rates.