interest rates - Business Finance
In your discussion post, select a 10- to 15-year time period (of your choosing) over the last 50 years. Then explain how the trends and changes of the federal funds rate and/or the discount rate have impacted short-term or long-term interest rates.Note: The time period you select in this discussion will be used in Final Project I.In response to your peers, examine the difference between your chosen time period and two other periods chosen by peers.To complete this assignment, review the Discussion Rubric document.
response_posts_2_1.docx
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Response to alisa h
Hello class,
The fifteen year time period that I have chosen to discuss is 2000-2015. A lot happened in the United
States during this decade from a terrorist attack in 2001 to the housing meltdown in 2007. I think it is
important to learn from our past so we are able to catch the signs of a recession before it is too late.
Federal Funds Rate are the interest rates that banks charge other institutions for borrowing money. They
are used to control the supply of available funds, inflation and other interest rates. (Bankrate, 2020) The
Federal Reserve likes to keep the fed funds rate between 2.0\% to 5.0\% to maintain a healthy economy.
In history, there are times when the nations was above this percentage to restrain from inflation. Between
the years of 2008 and 2015, the federal funds rate was between 0.0\% and 0.25\% (Amadeo, 2020)
2008: GDP = -0.1\%, Unemployment = 7.3\%, Inflation = 0.1\%
Date
Fed Funds Rate
Event
Jan 22
3.5\%
Jan 30
3.0\%
Tax rebate
Mar 18
2.25\%
Bear Stearns bailout
Apr 30
2.0\%
Oct 8
1.5\%
Lehman fails; Bank bailout approved
Oct 29
1.0\%
AIG bailout
Dec 16
0.25\%
Lowest fed fund rates possible
The chart above shows a quick decline in the Federal Funds Rate from Jan to Dec. This decline was
accompanied by a a rise in the number of unemployed Americans to roughly 6.5 million in Dec.
The country is still feeling the damage done during this global financial crisis. It is estimated that the
meltdown in 2008 will cost every American roughly $70,000.00 in their lifetime. (Schoen, 2018)
Reference:
Fed Funds Rate, January 14, 2020, Federal Reserve Funds Rates retrieved from:
https://www.bankrate.com/rates/interest-rates/federal-funds-rate.aspx
Amadeo, K. January 08, 2020, Fed Funds Rate History with its highs, lows and charts retrieved from:
https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135
Schoen, J. September 12,2018 Financial criss of 2008 is still taking a bite out of your paycheck 10 years
later retrieved from: https://www.cnbc.com/2018/09/11/financial-crisis-of-2008-still-taking-bite-out-of-yourpaycheck-report.html
Response to brady r
Hello Everyone,
The ten year time period that I have chosen to write about this week is 2000-2010. I have chosen this
time period as we have all lived through it, and I feel as though it would be beneficial to know more indepth the effects that some of the lowest interest rates in history had on our economy as a result of
federal funds rates. I also feel as though it will be advantageous to know of the recent history of federal
funds and discount rates in this decade as it was recent, and still has an effect on decisions made in the
economy today. When banks charge other banks to borrow money from their reserves it is known as the
federal fund rate. The discount rate is the interest rate that banks pay when borrowing from the fed. The
economy typically does a good job of responding to cheaper rates as the market will typically rebound
when they are set low. Whether it be consumer confidence or investor confidence, lower interest rates
typically indicate more opportunity. (Chen, 2019)
In 2008, the economy of this country was obviously not in a good state. I have included a table by
Kimberly Amadeo on thebalance.com. that illustrates how much the federal fund rate had changed over
the course of the year at the bottom of my discussion. It is clear to see that as GDP, unemployment, and
inflation began to increase in non-favorable ways, the fed continued to decrease the interest rates in
hopes of boosting economic activity. With the federal fund’s rates and discount rates decreasing, other
interest rates also follow in the same way. Lenders often mirror their interest rates similar to the prime
lending rate. (Chen, 2019) The federal fund rates in 2008 went from 3.5\% in January to nearly zero
percent in December. This is an indication that all of these interest rates falling is a result of the fed
responding to an economy that needs a boost and more consumer and investor confidence. This
impacted the interest rates short and long term as the rates were near zero percent until 2015. Today it
still sits pretty low at about 1.75\%, which is how the 2008 crisis had an effect long term as these rates
have been pretty low since then. (Amadeo, 2020)
2008: GDP = -0.1\%, Unemployment = 7.3\%, Inflation = 0.1\%
Date
Fed Funds Rate
Event
Jan 22
3.5\%
Jan 30
3.0\%
Tax rebate
Mar 18
2.25\%
Bear Stearns bailout
Apr 30
2.0\%
Oct 8
1.5\%
Lehman fails; Bank bailout approved
Oct 29
1.0\%
AIG bailout
Dec 16
0.25\%
Lowest fed fund rates possible
(Amadeo, 2020)
Have a great week,
Brady
References:
Amadeo, K. (2020, January 8). Highest and Lowest Interest Rates and Why They Changed. Retrieved
from https://www.thebalance.com/fed-funds-rate-history-highs-lows-3306135.
Chen, J. (2020, January 8). Federal Funds Rate. Retrieved from
https://www.investopedia.com/terms/f/federalfundsrate.asp.
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