The Fed is widely expected to raise interest rates for the first time in nearly a decade later this year. But how much will rates actually go up?
The answer to that question depends on a number of factors including the health of the U.S. economy the actions of other central banks and the level of inflation.
Inflation has been running below the Fed’s target of 2 percent for several years but is expected to pick up in the coming months as the economy continues to strengthen. If inflation does begin to rise that could give the Fed confidence to raise rates more quickly.
The Fed has said that it plans to raise rates when it sees “some further improvement” in the labor market. The unemployment rate has fallen to 5.3 percent but many economists say it is still not low enough to be considered healthy.
The actions of other central banks could also influence the Fed’s decision on rates. If the European Central Bank or the Bank of Japan begins to raise rates that could put upward pressure on U.S. rates.
In the end the Fed will probably raise rates by a small amount at first and then wait to see how the economy reacts. If all goes well rates could rise a bit more over the next few years.
But if the economy falters the Fed could always reverse course and start cutting rates again.
References:
http://www.wsj.com/articles/how-much-will-the-fed-raise-interest-rates-1434069781
http://www.cnn.com/2015/06/10/investing/fed-interest-rates-yellen-dovish/
How much will the Fed raise interest rates?
The Fed is expected to raise interest rates by 0.
25%.
How often does the Fed meet to discuss interest rates?
The Fed typically meets eight times a year.
How do higher interest rates affect consumers?
Higher interest rates often lead to higher borrowing costs for consumers which can in turn lead to less spending.
How do higher interest rates affect businesses?
Businesses may be less likely to expand when interest rates are higher as the cost of borrowing money becomes more expensive.
How do higher interest rates affect investors?
Higher interest rates can lead to lower stock prices as higher borrowing costs can hurt company profits.
What is theFed’s main goal when it comes to interest rates?
The Fed’s main goal when it comes to interest rates is to promote maximum employment and stable prices.
How has the Fed’s stance on interest rates changed in recent years?
The Fed has been gradually raising interest rates since 2015 after keeping them at historically low levels for years in an effort to help the economy recover from the Great Recession.
What is the current federal funds rate?
The current federal funds rate is 1.
50%.
What is the target federal funds rate?
The target federal funds rate is 2.
00%.
How do changes in the federal funds rate affect the economy?
Changes in the federal funds rate can affect everything from mortgage rates to the stock market.
What are some of the risks associated with raising interest rates?
Some of the risks associated with raising interest rates include inflationary pressure and slower economic growth.
What are some of the risks associated with keeping interest rates low?
Some of the risks associated with keeping interest rates low include asset bubbles and higher inflationary pressure.
What are some of the risks associated with lowering interest rates?
Some of the risks associated with lowering interest rates include a potential decrease in spending and economic growth.
What are some of the risks associated with leaving interest rates unchanged?
Some of the risks associated with leaving interest rates unchanged include missing an opportunity to either stimulate or control the economy.
What is the difference between the federal funds rate and the discount rate?
The federal funds rate is the rate at which banks lend money to each other overnight while the discount rate is the rate at which the Fed lends money to banks.
