Here’s a great breakdown on why the interest rates fluctuate every day.
- Overall Economy: If the Gross Domestic Product of the overall economy improves, interest rates will go higher. If the economy declines, interest rates will usually go lower.
- Income Tax Rates: If the individual or corporate tax rates are reduced, this will increase the need for government borrowing, at least in the short run, putting upward pressure on interest rates.
- Infrastructure Spending: If the new administration increases infrastructure spending, this will increase government borrowing and cause interest rates to increase.
- Inflation: If the inflation rate, which has been hovering around 2%, begins to increase, this will directly cause interest rates to increase. The Federal Reserve is targeting a 2% inflation rate and will raise the Fed Funds rate if they see inflation going over 2%.
- Fed Funds Rate: If the Fed Funds rate increases in December, it will likely have little or no impact on overall rates since it only applies to overnight loans to Fed member banks, and an increase is already priced into the market’s expectations. However, a series of increases would signal the market that government policy makers view that the economy is improving, and overall market rates will soon begin to increase.
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