Fed Rate Effect on Business

In: Business and Management

Submitted By kshjr5
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The Federal Interest Rate and How it Effects Business

Interest is the cost of borrowing money. You pay it in almost every facet of life and business, from taking out a home mortgage, to credit card use, to equipment loans and lines of credit. The rate that you pay or the percentage is not random and is directly correlated to the Federal Reserve Bank’s (The Fed) interest rate. The Fed’s interest rate has an endless effect on how the economy operates and how business is done throughout the world. This effect not only has a direct impact on the stock and bond markets but has an even greater effect on how business operations make decisions and progress in our society. Monetary policy in the United States has been and always will be one of the most important topics in politics that we have as a nation. The effect that inflation has upon society is the greatest threat to wealth management and stability that we face. This interest rate or more specifically, the monetary policy used by the Fed is what drives business and commerce. The effect of the Federal interest rate to not only create opportunity but have the ability to drive industry up or down depending on the amount of money banks have to lend to small businesses and individuals is profound. Every politician will at some point or another, state that “Small Business is what drives the American Economy!” This is not just rhetoric but proven by the amount of jobs and income generated from small business. According to the U.S. Small Business Administration, small business accounted for 46% of private, non-farm Gross Domestic Product (GDP) in 2008 (the most recent year with the source data available). (Kobe) Innovation and ideas grow out of the small business community and create the larger industries we have. When the interest rate is lower, banks are able to borrow more from The Fed and in turn loan more…...

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