Why do interest rates matter so much?

Many people must have wondered why certain things tend to cost more than it did than the previous year. If you keep banging your head against the wall trying to find an answer to this mystery, then here’s what you must know.

If interest rates intrigue you, then you must also try to understand the concept of inflation. Given the global economic uproar, many countries have seen extreme fundamental changes during this year. The occurrence of such drastic events indeed hold a seismic significance. Would all of us be defenseless against a probable financial crisis? This thought is now deeply rooted in the minds of people following the 2008 recession and the fear of the Great Depression of the 1930s. So, basically, why are interest rates so important and how do they affect the global market? Time to assess the situation.

What are Interest rates?

Interest rates affect the price of borrowing money and how much you earn if you manage to save it. If someone refers to an interest rate allotted by an individual lender, then the interest rate will be decided by that person. In any other case, the rates decided by central banks of respective countries. If interest rates are low, taking a loan will consequently cost less, thus increasing spending power of consumers. If prices remain low, demand for consumer goods will also rise, which is a good thing for the economy and businesses. However, inflation may also rise if prices are driven up. If inflation is high, interest rates might have to be increased, which will incite people to spend less and save more.

How is Inflation concerned?

If inflation rate is high, it will exert pressure on the actual value of money which in turn will cause less expenditure amongst people. If a country is under the influence of inflation, the total sum of money a person earns as salary will not be able to measure the actual pricing of goods on the market. That is, what a person earns will be too less to be able to afford goods available, thus, there will be many such products a person will have to forgo. This can also be bad for an economy of a country since less expenses will lead to a decrease in businesses. This will have quite a considerable impact on the economy as many industries will enter a fierce competition and struggle to sell products and services. Changing trends in inflation and interest rates might also provoke fluctuations in supply and demand.

Recession period

The world might be unable to tackle the next global crisis since most of the key economies have used their ammunitions in clearing losses incurred in 2008 financial crisis. The recession period was harsh for many countries, including the United-States. At that time, many important economies, pulled their interest rates below so as to support their economies. Economic recession at that time made its way deep into the roots of the economy challenging the strength of big economies such as the United-States.

This resulted into mass unemployment, social programs began collapsing and millions of people were faced to poverty. During that period, many countries went on war, bringing more despair to the already impoverished nations. Restructuring of economies became a prime concern but there was not a singular option to that problem. Factories began shutting down, interest rates went low, demand and supply staggered and many companies began closing their doors. Some companies were never able to surge back again and some people were unemployed for longer periods.

The raise in interest rates is important for United-States and if so does happen, other key economies such as Britain will also follow by next year. Since the beginning of this year, fundamental changes have created a streak of changes, warning of losses and gains. The United-States saw a recovery over the last few months which has encouraged the Federal Reserve to raise the interest rates. The U.S. labor market is seen improving, housing is quite good while the dollar keeps a stronger value versus other key currencies. Positive fundamental economic data are the key ingredients in provoking the interest rates. So far, the numbers have been good for the U.S., therefore, investors and analysts predict that the increase in interest rates might occur.

U.S Interest Rates - Your winning opportunity

The U.S. Interest Rates decision data have created quite a buzz on the trading market and is the BIGGEST BINARY OPTION EVENT of the year. The Federal Reserve might bring a change in its Federal funds rates which is also known as the famous Interest rates. Since 2008, the rates have been depreciated a value of 0.25 percent due to a slowing U.S. economy and has remained stagnant since that time. So changing the interest rates after almost a decade represents an awesome trading opportunity.

Not later than yesterday, the U.S. stocks rallied higher for a second consecutive day and paced up as the two-day meeting of the Federal Reserve begun. Big bets are taking place and this is a unique chance of making it BIG! Indices were heavily boosted, with the S&P 500 closing 0.9 percent higher while the Dow Jones Industrial Average boomed up by 0.8 percent.

The event is expected to create major effects on investor’s sentiment and might also encourage investors to decrease borrowing and increase investment in the United-States, if a hike in rates does occur. Thus the strategy to adopt will be a first 30 minutes expiry on major assets versus the U.S. dollar, along with gold and silver. Do not miss the aftermath of the interest rate decision as the during the press conference of Janet Yellen, the chairperson of the Federal Reserve, a strong trend will occur.

Also, the EURUSD pair will be a main asset to trade as an uptrend has been noticed for the pair since a few days now. In case of a "no-rate" decision, Call Options are found at the 1.137 and 1.132 for the EURUSD and in the event of a hike in rates, PUT options will be around the 1.125 and 1.121 level.

The exclusive webinar hosted by our financial expert, Mike Roberts, is the door to all these trading opportunities. He will not only introduce you to binary options but will also show you how to gain from trading on the interest rate decision data. Do not miss this webinar.

 
Warren Tancredi By: Warren Tancredi
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