http://www.cnbc.com/id/102032001
Richard Fisher of the Federal Reserve, says that rates will likely rise in spring of 2015, he also added that it may hit even sooner.
This is a case identical to what we discussed in class, about how without even changing the interest rate yet, simply warning that it will rise in the future will cause immediate responses and actions. We should see people's expected inflation to rise, which according to the Fisher effect will cause interest rate to rise. Demand for real money will decrease, as its value will decrease in the future. Lastly, we will see prices increase to account for the decreased demand of money.
Rising interest rates will impact both consumers and firms. Higher rates make payments on credit cards and loans more expensive; this in turn will discourage people from borrowing. Those who already have loans will now have less disposable income due to increased interest payments. As a result, consumption will fall. Furthermore, an increase in interest rates will discourage investment as firms and consumers will be less likely to engage in risky investments and purchases.
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