Describing Inconsequetial Quarter - Point Rate Hike (Essay Sample)

Inconsequetial Quarter-Point Rate Hike
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Inconsequetial Quarter-Point Rate Hike Interest rates in the U.S have been near-zero for nearly a decade now. This has provoked the Federal Reserve Open Market Committee to hike interest rates before the year ends according to the chair Janet Yellen. Though an hike in the rates is meant to stabilize an economy, the U.S economy is exceptionally doing well. However, there is a need to see that the rates rise in trying to remedy a slowing economy in future just in case it ends up down there. Therefore, since a quarter-point rate hike is insignificant, a series of such rates cummulatively would affect consumers, financial institutions, various sectors and industries among other stake-holders (“Andrew Soergel: How Will A Rate Hike Hit Americans’ Bank Account?”, para. 9). According to him household budget, a single quarter-point rate hike is insignificant. In order to realize a significant effect on the same, a series of rates would be consequential. There is small marginal increase on individuals’ adjustable rates such as houseld consumption after a couple of years (“Andrew Soergel: How Will A Rate Hike Hit Americans’ Bank Account?”, para. 11). For intance, people buy houses because of a better economy rather than having the interest rates influencing their purchases according to Andrew Soergel. When the economy is at its knees, individual’s budget is constrained to the consummables. This rate hike translates to a modest increase in mortgage rates hence having a positive result on housing sector. However, the kind of a house one chooses to buy will be dependent on the mortgage rates but the decision of purchasing it is entirely dependent on the betterment of the economy. Therefore, rates does not influence much on the initial decisions of the consumer (“Andrew Soergel: How Will A Rate Hike Hit Americans’ Bank Account?”, para. 18). He says that a person intention of a loan (auto loan) to purchase an asset of a given value ($25,000) cannot change his decision (downgrade from the SUV) due to a quarter-point rate increase ($3) per month. Rather a series of rate hike will eventually lead to a slow economy because of higher mortgage rates and auto loans. In general, consumer’s tastes and preferences are not affected by a quarter-point rate hike. Banks are not going to be affected as much because they will be treading more gradually than the Fed itself. According to Soergel, the reason is that majority of the banks have enough reserves and therefore may need not to increase their rates to persuade more depositors. To gain more they only increase the loanable rates and not the keep the deposits’ modest. In that note, clients should not raise their expectations relying only on the hiked rates but they should invest more on other sectors instead (“Andrew Soergel: How Will A Rate Hike Hit Americans’ Bank Account?”, para. 14). It is important to note that there is no immediate returns on the saver’s side. Th...