Interest Rates in the United States:
Are Big Moves Coming?
The Federal Reserve decides to leave interest rates unchanged in the face of weak global economic growth.
October 2015
Alex Sandberg '17
Interests rates are an essential part to every economy’s state of being. The FED, otherwise known as the Federal Reserve, controls whether the interests rates are lowered, increased, or kept the same. There can be multiple reasons why the Federal Reserve would change the interests rates. If an economy were to be crashing or on the general down low, the FED would most likely decrease the interests rates so commercial banks can give inexpensive loans. As a result, loaners can borrow more money for bargain rates and therefore more money is in the overall cash flow. The FED normally increases rates after past success to curtail inflation. Lastly, when the FED keeps interest rates steady, there are a multitude of reasons.
In the month of September, many economists and participants in the stock market have expected the Federal Reserve to lower interests rate for the first time since the economic turmoil seven years ago. Since the financial crisis, the American economy has climbed back on track after the FED moved interests rates to an all time low. Since then, the FED has been slowly increasing interests rates to hinder inflation, or in other words, take money out of the overall system. Last month the FED decided not to raise interests rates due to the influence of the rest of the world. The growing American economy has essentially been keeping the global economy afloat. Over the past few years, the European economy has witness a heavy decrease in overall production and expansion. As a result, the rest of the world has been relying on the American and Chinese economy for the past years.
The major problem that the Federal Reserve experienced last month was the decision to lower the rates or keep them the same. China, one of the largest economies in the world, was and still is experiencing economic troubles because their rapid expansion has dramatically slowed down. As a result, the struggling countries of Europe and Asia greatly influenced the FED’s decision because they encouraged lower interests rates due to the fact that the economy will be able to sustain a steady increase and cheaper rates to trade with America. An article written on Forbes.com states, “A weak global economy most directly impacts U.S. exports, while at the same time negatively impacting U.S. stock markets. Along with weak global economic growth, low rates of inflation also played a role in the FED’s decision to keep interest rates unchanged (Trefis Team, Contributor)”. However, the FED knew that not lowering interests rates could cause great consequences in inflation. Furthermore, the Federal Reserve ultimately decided to not move the rates. Keeping the interests rates steady proved to citizens that there truly is something wrong in foreign economics which put fear in the minds of many investors in the American market. The Federal Reserve had a tough choice to make but there is not a straight out cut answer. It remains to be seen if the FED decides to continue to keep interests rates lowered.