Interest Rates Today (Today’s Interest Rate)

 

 

Interest rates are the primary reason for the unstable nature of the global markets. The uncertainty and volatility of interest rates significantly affects the investments, savings and borrowings of individuals. Hence, it is imperative to find the interest rates today to optimize the returns or borrowings.[br]

 

Impact of Inflation on Interest Rates Today

Although the impact of inflation on interest rates takes place gradually, they can significantly affect the market interest rates today. To understand the impact of inflation on today’s interest rates, it is necessary to understand the types of inflation. Inflation can be broadly classified into:

 

• Long-term: This is an economic scenario where the supply of money in the market increases at a faster rate than the production of goods and services. Long-term inflation is generally adjusted against long-term interest rates and has little or no bearing on today’s interest rates.

• Short-term: This takes place due to sudden shocks in the economy. Food and energy price spikes are the most common causes of short-term inflation. Such shocks can almost instantaneously affect the interest rates today. In general, short-term interest rates are increased to contain short-term inflation.[br]

 

Monetary Policy Actions and Interest Rates Today

In general, the effects of monetary policy actions on the economy are transmitted through their impact on the market interest rates. Ordinarily, a restrictive policy can push up today’s interest rates. This results in lower spending on interest-sensitive sectors, such as consumer durable goods and housing. Conversely, a lenient monetary policy can lower interest rates today and thereby stimulate economic activity.

In the US, short-term interest rates are almost entirely dependent on the overnight lending rate or ‘Fed Funds’ rate determined by the Fed Open Markets Committee (FOMC). The FOMC is essentially an executor of the monetary policy, which meets about once every six weeks to alter the interest rates, depending on the course of the economy.

For instance, post-September 11, the FOMC eased interest rates to stimulate borrowing and spending. On the other hand, during the ‘tech boom,’ the FOMC hiked rates to increase borrowing costs and tightening money supply.

In conclusion, for risk-averse individuals, it is advisable to invest in fixed-rate funds or borrow at a pre-determined rate to shield oneself against fluctuations in interest rates today.