Question

What do you think will happen to interest rates over the next year and why?

Answer 1

The US economy has come out of the recessionary effects of the 2008 financial crisis and it can be confirmed by the recent data such as unemployment level of 4.1%, inflation above 2% and Federal Reserve increasing the Federal Funds rate. Such recent development, indicates that the interest rate will further rise in the next year. It will happen, because Federal Reserve would like to regulate the economic growth with price stability. If interest rate will not increase, then investment and consumption spending will increase as before and ugly buying habits will set in the economy. It will increase the inflation and supply side of the economy will suffer. Besides, other economic issues like the weakening of the currency and decreasing purchasing power will also take place. So, it is important to increase the interest rate when the economy grows as it will bring price stability.