Interest Rates

The stock market. Employment levels. Auto sales. Inflation. New housing starts. Credit card interest rates. These components of the U.S. economy and many others that have a significant impact on individuals are all affected by the short-term interest rate regulated by the Federal Reserve System (Fed) and its chairman, Alan Greenspan. The Fed is responsible for regulating the nation's money supply in order to bolster economic growth. One of its main methods of regulating the money supply is its autonomy in setting the short-term interest rate, the amount of interest it costs banks to borrow money for short periods from other banks in possession of surplus reserves.

The interest rate affects all Americans either directly or indirectly. It affects them directly in such ways as credit card interest rates, inflation levels, numbers of car sales, and from its impact on employment levels. If affects them indirectly by having an impact on the stock market (often directly here also), economic growth levels, and from its affects on the world economy. Historically, economists argued that the economy could experience low levels of unemployment or low levels of inflation, but Greenspan's policies have created the longest running period of economic expansion in U.S. history wherein we are experiencing both "People think he's [Greenspan] God. They think he's responsible for low inflation and low unemployment. We've been

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sted annual rate of 966,000 in March, the highest level since 995,000 homes were sold in November, 1998. Many analysts were expecting new-home sales to fall by roughly 2 percent to a level around 900,000. The 4.5 percent gain posted in March was the biggest leap since a 6.8 percent increase in October. Since June 30, the Fed has boosted interest rates five times in an effort to slow the speeding economy and keep inflation under control. The Fed's rate increases are designed to raise borrowing costs for big-ticket items such as homes and cars and in that way cool off demand and keep inflation from getting out of hand. This atypical scenario may be due to the robust U.S. economy which keeps consumer confidence at high levels, but such an economy is also reason for expecting the Fed to continue its policy of short-term interest rate hikes. In addition to its profound impact on consumers directly, the short-term interest rate also affects them indirectly both domestically and internationally. The money supply (and its regulation) is so significant to the U.S. economy that it is included in the eleven components that make up the 11 indicator components used as a measure of the U.S. economy. The components are measurable ov

Category: Economics - I