Going Up or Going Down

The decision on increasing interest rates has been looming for quite some time now. There has been much back and forth action. When the Federal Reserve increase or decrease interest rates it affects many establishments. They set the pace for all future decision making. With the increase of interest rates, it comes with the decrease in bond prices. This is because higher interest rates convert into new bonds with higher coupons. If the economy is growing, people will be more willing to invest more and therefore more ready to pay the higher interest to borrow from banks. In addition, banks raise their rate, which directly influences mortgage rates, business loans, and other consumer loans. Lower interest rates usually will make borrowing easier. Higher interest rates in turn are meant to make borrowing harder.

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