This blog post is about the economics of interest rates. Interest rates are a measure of how much it costs to borrow money or lend money in an economy. This article will explore why interest rates change, who benefits from changes in the rate, and what you can do to protect your investment portfolio when there's uncertainty about where they're headed.

Interest rates are the price of borrowing money in an economy. When people or businesses borrow, they do so because they need capital to purchase something that will generate income, such as a house or business project. The lender is lending his savings and receives interest on it until he gets paid back by the borrower. If someone purchases a fixed-income security, such as a bond or certificate of deposit (CD), then they are lending money to the issuer in return for periodic interest payments. When someone purchases equity securities, like stocks and real estate investment trusts (REITs), they own part of an asset that is expected to generate income through dividends or rental revenue.

To understand why interest rates change it's important first to understand what influences supply and demand. Supply refers to how much people want to lend at any given level of interest rates while demand means how many borrowers there are who need capital at those same levels of interest rate yields. If you think back on your Economics 101 course, we learned about things called "supply and demand" curves which show the relationship between price and quantity. If the price is low, then there's more supply that people want to sell or buy. If the price goes up, it means that less of the product will be supplied because demand decreases as prices rise.

If you want to see how supply and demand impacts interest rates, then watch what happens when the Federal Reserve conducts policy. When they increase interest rates, it means that there is less money available on the loanable funds market because borrowers are paying more for capital. This tends to happen in an economy where growth has been good over a long period of time with minimal inflationary pressures. The Fed increases short-term interest rates by changing either the discount rate or federal funds target rate which immediately affects longer term financing costs like mortgages and corporate bonds through channels such as adjustable-rate loans, swaps, caps and floors contracts among others while also putting downward pressure on equity prices since investors require higher returns from riskier investments just like fixed income securities. On the other hand, if the Fed lowers interest rates then it means that there is more money available in the loanable funds market since borrowers are paying less for capital. This tends to happen in an economy where growth has been slow or negative with high inflationary pressures. The Federal Reserve decreases short-term interest rates through channels such as open-market operations which immediately affects longer term financing costs like mortgages and corporate bonds while also putting upward pressure on equity prices because investors require lower returns from safer investments just like fixed income securities.

The economic literature shows that when you decrease your exposure to riskier assets (stocks) and increase your allocation towards safe haven assets (bonds), you can protect yourself against a rising rate environment even though nobody knows exactly what will happen.

If we were to see the Federal Reserve raise interest rates next week, then investors would want to own more bonds and sell stocks which has an immediate impact on equity prices.

The general rule is: when short-term interest rates increase (the Fed raises its policy rate), stock prices generally fall and bond prices rise since they are negatively correlated assets whereas when short-term interest rates decrease (the Fed lowers its policy rate), stock prices tend to rise and bond prices decline because they're positively correlated assets.

To summarize this blog post, Interest Rates change depending on economic conditions such as inflationary pressures or recessionary forces in order for both savers & borrowers to remain happy while protecting their investments from volatility. As a result of changing interest rates, the bond market is one of the most reliable places for investors to invest their money.

Interest rates are determined by supply and demand forces in the economy, which makes it easier to understand how changing interest rates can impact economies around the world. If we were to see an increase in short-term interest rate next week, then that would mean less capital availability on the loanable funds market while also increasing prices for riskier assets like stocks due Risks of inflation & recessionary pressures. On the other hand, if we were to see a decrease in short-term interest rate next week, then that would make more capital available on the loanable funds market while decreasing prices for safer investments like bonds because there's lower chance of seeing risks associated with inflation & recessionary pressures.

The Federal Reserve is the central bank of United States whose goal it is to ensure maximum employment, stable prices and moderate long-term interest rates in order for businesses & consumers to remain happy with their investments while protecting themselves from volatility with a higher amount of capital available on the loanable funds market by setting short-term interest rate targets that influence longer term financing costs . There are three ways they can change or adjust this rate: changing either discount or federal fund's target which then affects other kinds such as adjustable rate loans among others so we could say there will be more money available when Fed lowers its policy rates because borrowers pay less for capital whereas if they were to increase short-term interest rates then it means there would be less capital available for borrowers and they will pay more.

Now what does this have to do with borrowing money?

Well, as you're probably aware, being private money lenders and mortgage brokers, we have to charge the consumer a % of the loan value as interest in order to write the loan, and of course, make a profit from lending our cash.

Understanding that interest rate is just not some fungible number that can move whenever it wants is key to understanding how much you'll be charged on any one of our loan products.

If you've got any more questions, give us a call at (347) 696-0192 or email us at jason@jakenfinancegroup.com