Here’s Why You Should Show Interest in the Federal Reserve Changing the Interest Rate.

For the first time since the financial crash in 2008, the Federal Reserve increased the interest rates. Nine years ago, we were in elementary school and the only thing memorable from 2008 to us was the bops that came out. We were too young to understand the chaos happening around us, but now as the Fed changes its rates we’re going to experience the true power that they have in the economy.

What is the interest rate?

The interest rate, is actually the rate at which banks borrow from each other after hours, if they have a high interest rate, then we have high interest rates.

So how are they changing the rate?

For starters it doesn’t assign a number to be the interest rate. The Fed will either buy or sell bonds. When they buy bonds they’re essentially putting more money out in circulation which will decrease the cost of borrowing money. When they sell bonds, the citizens are the ones buying the bonds and giving them money, less money in circulation, more cost to borrow.

So why change the rate? 

When they want to encourage spending they lower the interest rate. With a lower interest rate there’s less of an incentive to leave money in a savings account because you wouldn’t be making much money leaving it there. There is a higher incentive to spend and take on a venture like starting a business, because it wouldn’t cost as much as it could cost. If they feel the economy is at a stable point and people will still spend if the rate goes up they’ll increase it.

For almost a decade they kept the interest rates very low to encourage people to spend, and show that it was safe to reenter the market. Except now they’re finally content at the level the market has gotten to in the past less than 6 months they’ve increased the interest rate by a little bit 3 times now.

So does that mean for us, we were children when the market crashed in 2008 but now a we’re almost adults. We’re coming to the point in time when we’re taking out loans for whether it be cars, college, an apartment, all the things that we need to grow independent from our parents. While the economy is stabilizing out, it is unpredictable, we won’t know what happens with the economy until it happens. So, it took us nine years to get here, let’s see where we are in the next nine.