Your financial planner: What the Fed’s interest rate policy means for you

Interest rate risk is also important to bonds; if interest rates rise, the prices of bonds fall. This affects the secondary market for bonds; for example, if one purchases a bond with a 3% interest rate and the prevailing rate rises to 5%, it becomes difficult or impossible to resell the bond at a profit .

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Last month, the Federal Reserve made the decision to cut interest rates for the first time since 2008 and it’s raised some eyebrows in the financial world. The headlines might have caught your attention as they did us. Rates are tied closely to the economy so it’s natural to wonder what this news means for the future.

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Federal Reserve's Key Policies for the Provision of Financial Services.. To explain how such changes affect the economy, it is first necessary to. The federal funds rate is the interest rate that banks pay to borrow reserve balances overnight.. machinery, and equipment–involve long planning horizons.

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A so-called “neutral” monetary policy, also called the “natural” or “equilibrium”. You may know that the federal funds rate is the interest rate that banks charge. raise or lower interest rates may act as a signal to financial markets about the health of. The answer is the neutral rate, often defined as the rate or range of rates.

Learn what is driving U.S. interest rates higher and what the potential implications of rising. What do higher long rates mean for Fed policy?

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The Effect of Interest Rates on Inflation and Recessions. A good example of this occurred between 1981 and 1982. Inflation was at 14% a year, and the Fed raised interest rates to 20%. This caused a severe recession, but it did put an end to the spiraling inflation that the country was seeing.

Want to learn more about the Federal Reserve and why they raise or lower interest rates? Do you have other general questions about financial planning? Send them to our Knoxville Certified financial planner paul Fain or directly to!

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