The US Federal Reserve has announced that it will raise interest rates for the first time in 9 years - Polidicks

[QUOTE] The Fed dropped the key word "patient" from its statement Wednesday, signaling that it could increase interest rates in June for the first time in nine years. The central bank stressed that it has not decided on the timing of the initial increase and that action is "unlikely at the April meeting." The stock market surged on the news. The Dow was falling over 100 points before the Fed statement and is now over 200 points higher. [/QUOTE] [url]http://money.cnn.com/2015/03/18/investing/federal-reserve-rate-announcement/index.html?iid=Lead[/url]

I'm not a financial expert, so when they say "increase interest rates", what exactly do they mean by that? Does it involve savings accounts, or is it more what the people pay?

[QUOTE=ironman17;47349532]I'm not a finall expert, so when they say "increase interest rates", what exactly do they mean by that? Does it involve savings accounts, or is it more what the people pay?[/QUOTE] It refers to the interest rate at which the Federal Reserve will loan money to the commercial banks. This then affects the commercial banks interest rates which they loan money to the general public at. I think it does affect savings accounts rates but im not sure on that.

So I'm guessing that loans will become more "expensive" than they were before, meaning they'll have to pay back more? Ok, that makes sense, since presumably the economy has stabilized to the point where loans can be paid back more reliably than they were back during the credit crunch.

[QUOTE=ironman17;47349781]So I'm guessing that loans will become more "expensive" than they were before, meaning they'll have to pay back more? Ok, that makes sense, since presumably the economy has stabilized to the point where loans can be paid back more reliably than they were back during the credit crunch.[/QUOTE] There are about a billion things involved in determining interest rates. The economy has been stable for quite some time, it is a matter of making sure the Fed doesn't fuck a lot of shit up too soon by raising them.

The bigger issue the fed hasn't been able to tackle is the underwhelming wage growth numbers, not only was it stagnant, its far underperforming, meanwhile banks have been begging to keep this rate low promising it would pick up To be clear though they didn't really announce a rate hike or a specific number just that its likely coming and they're still debating on how high to raise it based on market analysis so at most it'll be a tiny hike

[QUOTE=Sableye;47352682]The bigger issue the fed hasn't been able to tackle is the underwhelming wage growth numbers, not only was it stagnant, its far underperforming, meanwhile banks have been begging to keep this rate low promising it would pick up To be clear though they didn't really announce a rate hike or a specific number just that its likely coming and they're still debating on how high to raise it based on market analysis so at most it'll be a tiny hike[/QUOTE] Wage growth isn't the role of reserve banks.

Increasing interest rates indicates that the Federal Reserve is engaging in contractionary monetary policy. This will be done at times in an effort to limit inflation or something like that. Basically, on a macroeconomic level higher interest rates make it more desirable for the average person to keep their money in bank accounts rather than keeping it on person and spending it. In this way, spending is reduced and economic growth is slowed down. Lower interest rates have the opposite effect. They make it less desirable to keep money in bank accounts, and encourages you to spend your cash in an effort to boost economic activity. This is obviously desirable during periods of slow economic growth such as the GFC, but since the economy has picked up since then it is time to increase interest rates. Though there are many issues which go into the decision to raise/lower interest rates, this is the basics of it.

[QUOTE=mcattack1092;47349743]It refers to the interest rate at which the Federal Reserve will loan money to the commercial banks. This then affects the commercial banks interest rates which they loan money to the general public at. I think it does affect savings accounts rates but im not sure on that.[/QUOTE] There is also a direct correlation between interest rates and house prices. Low interest rates for the last decade here in Australia are the reason houses are so damn expensive here. Hopefully if the US is bumping up their rate then Australia's might go up too.

[QUOTE=ksenior;47352896]There is also a direct correlation between interest rates and house prices. Low interest rates for the last decade here in Australia are the reason houses are so damn expensive here. Hopefully if the US is bumping up their rate then Australia's might go up too.[/QUOTE] The Fed places no weight on international financial concerns. They are solely focused on internal performance, despite the increasingly global economy. If someone in St. Louis says the economy is doing well, then the economy is doing well, no matter what the rest of the world says. They have no interest in anyone else's financial health, and I would wager that other national banks do the same.

[QUOTE=Antdawg;47352748]Wage growth isn't the role of reserve banks.[/QUOTE] If the economy is their concern then wage stagnation is one of them

[QUOTE=Sableye;47355558]If the economy is their concern then wage stagnation is one of them[/QUOTE] Their concern is the money supply and controlling inflation, or monetary policy. They can't just go to employers and say 'pay your employees more', it's far from what they do.

[QUOTE=Sableye;47355558]If the economy is their concern then wage stagnation is one of them[/QUOTE] The Fed can only control inflation. Period. There is nothing else that they are in control of. [b]EDIT:[/b] Also, after reading the Fed's statement, the title is completely wrong, and the article is pretty wrong as well. The Fed announced that it [b][i]would not[/i][/b] increase rates for the foreseeable future, and any increase in the future would be very small. Because the stock market's performance is generally inversely correlated with interest rates, the market surged dramatically on the grounds that the Fed [b][i]did not[/i][/b] increase interest rates, making the market a better performer.