Are interest rates going up or down right now? What are interest rates today? In this video, I discuss the differences between the fed funds rate and interest rates and how high interest rates affect the economy
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What is the fed funds rate?
The fed funds rate is the interest rate target at which banks borrow and lend excess reserves from one another on an overnight basis. A committee of the Federal Reserve sets a target federal funds rate eight times a year, based on prevailing economic conditions. Currently the federal funds rate is set to .0 – .25%.
What is an interest rate in lending?
An interest rate is the amount of interest due per period, as a proportion of the amount lent, deposited or borrowed. The total interest on an amount lent or borrowed depends on the principal sum, the interest rate, the compounding frequency, and the length of time over which it is lent, deposited or borrowed.
Did the feds cut the interest rate?
Yes, the federal reserve did an emergency cut to .0 – .25% to help stimulate the economy during the coronavirus epidemic.
Fed funds rate vs interest rates
The two aren’t directly correlated but historically interest rates have followed the trend of the fed funds rate. Interest rates are tied to something called MBS’s (mortgage backed securities). Currently, interest rates have risen while the fed funds rate has been lowered to zero.
Why are interest rates going up?
The main reason that interest rates have gone up has to do with capacity issues at banks/lending institutions because of the recent influx of refinances/purchases due to really low interest rates. These banks have received way more volume than they thought and aren’t in a position to be able to handle it. That coupled with the fact that MBS’s are being priced well on the secondary market causing interest rates to rise.
Will interest rates go back down?
My feeling is that interest rates will definitely go back down likely to new lows in the next few weeks but we need to find some stability in the economy first. We need low interest rates to help stimulate the economy during this coronavirus epidemic. High interest rates affect the economy in a negative way when coming out of a global issue like we are currently experiencing and therefore I believe they have to go back lower in order to help us navigate to higher grounds.
Do you have questions about interest rates or real estate? If so, please reach out to me directly or comment below.
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