Interest rate refers to the amount which is received in relation to the amount loaned and which is expressed as ratios of dollars that is received per on-lent per hundred dollars. There are many factors that influence the interest rate in the current US economy. It is very difficult to predict when these forces will come into play and at what time they will drastically affect the interest rate. The changing economic condition plays a significant role in the interest rate fluctuations. The interest rate is mainly classified into specific interest rates and interest rates in general.
The specific interest rates are for financial instruments such as mortgages and bank certificates of deposit. This replicates that the money is on loan and may not be repaid. The federal government plays a significant role in influencing the interest rate of the US economy. “To the extent that foreign investors are willing to lend money to the U.S., they supplement domestic sources of funds in the marketplace, driving interest rates down. If they were to decide to reduce or sell their holdings in the U.S. and reinvest elsewhere, more needed funds would have to come from domestic sources, which would push rates upward.”
Among the several factors, the three important factors that are mentioned in the article provided are as follows;
- The amount of money that is saved by the households in the economy. It refers to investments made by the common public or households.
- The new business is developed by using this investment in the economy. These funds are mainly used by the business to finance new plants and pieces of equipment and supplies.
- The net supply and demand of funds by the government.
- Rapid changes in the US economy.
- Pressures due to inflation.
A few suggestions that are used to stimulate or “fix” the economy are as follows;
- Allowing the household to pay their mortgage will push the banks to come up.
- The per capita of $500 has to be distributed among the states to sustain employment in services and to reduce the hikes in the taxes.
- The federal should lend money to all the member banks, whereby permanent liquidity will be ensured.
- The treasury should not issue any bills for more than the time period of 3 months.