Interest Rates Remain Constant

ANTHONY RUBINICH & JORDAN REIS
Staff Writer & Business Editor


Janet Yellen announced on Nov. 1 that interest rates will remain constant.

Back on October 15th, Yellen defended the decision stating the economy was in overall good health. Low interest rates are meant to boost the economy during times of slow growth. Which, for the past couple of years, has been proven to work.

The vital signs associated with a healthy economy are present. Unemployment has stabilized at a sixteen year low of 4.2 percent. Labor force participation has also stabilized. The advent of the Trump Administration has seen record highs on the Dow Jones Industrial Average (DJIA).

According to a poll by Thompson Reuters, the prediction was that the Fed was targeting a rate increase within the range of 1 percent to 1.25 percent.

“We continue to expect that the ongoing strength of the economy will warrant gradual increases in that rate to sustain a healthy labor market and stabilize inflation around our 2 percent longer run objective,” Yellen said.

The decision to leave interest rates unchanged could very well be Yellen’s last as Federal Reserve Chair. Trump has named Jerome Powell as the next to lead the Central Bank. Powell is a Republican and a former investor who is currently a member of Federal Reserve Board of Governors.

Graph courtesy of FRED of St. Louis
THE MAIN reason the fed adjusts interest rates is to either curb or enhance inflation rates. Since the 1950s this has been their go-to tactic.

How do interest rates effect the economy?

The rate set by the Fed is the rate at which the central bank loans money to banks. This rate trickles down to consumers and businesses to effect loan rates, such as auto or home, and therefore effects how much investors would expect out of an investment.

Going into the future, the impacts of another increase are unclear. Rates on auto loans and mortgages might increase. According to Laura Woods from GoBankingRates.com, “when the fed rate increase was announced in June 2017, rates for a conventional 30-year fixed rate mortgage ended the week at 3.91 percent, and despite a brief summer spike, they dropped back down to the exact same percentage for the week ending October 12, according to Freddie Mac.”

The way people can stay in front of these changes in interest is to go for a fixed rate loan. Rates this low for this long are rare and they are bound to swing up soon.

Meanwhile, rates on credit cards and student loans should not rise. Federal student loans such as the Federal Perkins Loans, Direct Subsidized and Un-subsidized Loans, Direct Plus Loans, and Stafford Loans are all fixed, therefore the payment will remain the same until the debt is paid.

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