The Federal Reserve ( Fed )

1111 WordsOct 20, 20165 Pages
The Federal Reserve (FED), is the central bank of the United States. It was created by Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system (Federalreserve.org, 2016). The monetary policy of the US is governed by the FED, which assist in regulating the supply and demand of money in the market. Interest rates are a very important tool of monetary policy that economists use to achieve the targets defined for the country’s monetary policy. Interest rates have a profound impact on the value of the country’s currency, inflation, export competiveness and imports into the country. Interest rates also impact the inflow and outflow of funds into or out of the country. Due to their wide reaching impact on the economy, if the Fed decides to raise the interest rates at the end of this year it will definitely impact several aspects such as consumer financing, annuities values, the NPV calculation, the WACC and corporate earnings. Effect of rising rates on the following: Consumer financing for big-ticket items such as autos and homes Rates on mortgages and other types of loans have been fairly low, creating more access to capital for businesses and making big-ticket purchases more affordable for consumers. If the FED raises the interest rate it will have several effects on the consumer. It will reduce their purchasing power and consumers shopping habits will be influenced. The decrease in purchasing power leads to a decrease in

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