Why Interest Rates Fluctuate

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Why Interest Rates Fluctuate

The Federal Reserve directs interest rates as a means of controlling economic growth in the U.S. If the economy grows too fast, it will experience inflation. That’s when prices rise so high that no one can afford anything.

The following are some of the factors that affect a country’s economic growth:

  • The financial stability of major companies
  • The financial stability of consumers and whether or not they feel comfortable spending money
  • The amount of national debt
  • Stock and bond market valuations
  • The amount of money pouring into investments
  • Consumer confidence in the current presidential administration

When the Federal Reserve instructs the central banks to raise the Treasury bill or prime rate, banks make money on the increased margin. However, since consumers cut back on their spending, banks extend fewer loans and credit lines, so their profits may experience a decline.

Do you know what “GDP” stands for? Test Your Interest Rate Knowledge