http://www.washingtonpost.com/business/us-stock-market-looks-ready-to-inch-up/2014/03/19/7d65d90e-af69-11e3-b8b3-44b1d1cd4c1f_story.html
The investors took messages away from the Federal Reserve on Wednesday that higher interest rates are coming and sooner than you think.
As we already discussed in class, the higher interest rate will reduce the investment because it will raise the cost of company borrowing money. It will cut the consumption also. According to the news from WashingtonPost, "The Dow Jones industrial average lost 114.02 points, or 0.7 percent, to 16,222.17. The Standard & Poor’s 500 index dropped 11.48 points, or 0.6 percent, to 1,860.77 and the Nasdaq composite lost 25.71 points, or 0.6 percent, to 4,307.60."
At the meanwhile, the higher interest rates also suggest the economy is getting better. The Fed is going to cut bond purchase from $65 billion to $55 billion. If the Fed keeps the interest rates low for a long time, it will cause overheat in U.S. economy and inflation.
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ReplyDeleteHigher interest rate will cause the inflation rate to decrease. Now, the inflation rate is 1.1 and generally decreasing right now. I guess U.S will be suffer from deflation like Japan. Deflation is much worse than inflation, from Japanese experience. So, I think raising interest rate is not good for U.S economy.
ReplyDeleteI'm kind of surprised that the interest rates are getting ready to rise already. I feel we still probably aren't quite where we need to be as a nation to slow the economic activity caused by low interest rates. It will A., be interesting to see if this is true, and B., it will be interesting to see how the US economy will respond.
ReplyDeleteNot sure if I agree with the decision to raise the interest rates. I am curious to see the time table on when they plan on raising the interest rate and what their future plans are for the economy, because we may be causing more problems then solving them.
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