3/23/2005

Good move by the Fed?

On March 22, The Federal Reserve raised its key interest rate for the seventh time in a row. This raise can be good or bad depending on what market you’re in. For people planning to buy a home or set in a variable interest mortgage this is bad. For me, the raise is good; it has made certain investments more appealing. In the article “How Does 3% Sound?”, Aleksandra Todorova says CD rates are finally starting to improve. With rates of 3 percent or better, CD’s are investments to research again. The raise boosted Treasury bond prices, sending yields lower, and also helped slow inflation, which has been a current concern in the economy. In general, I believe the interest raise was a good move by the fed for the country.

4 comments:

Diane said...

Raising the interest rate is a good move if it keeps inflation in check. Increased interst rates for CDs is also good as many people invest in these instead of the stock market. I don't exactly understand this because the stock market yields higher rates of return if money is invested wisely. But many people don't know how to invest wisely and are unwilling to pay a stock broker. This is one reason I'm worried about privatising social security. It didn't work for the U.K. Why should it work for us. Too many people do not know how to invest and culturally Americans are unwilling to do so.

Diane said...

Raising the interest rate is a good move if it keeps inflation in check. Increased interst rates for CDs is also good as many people invest in these instead of the stock market. I don't exactly understand this because the stock market yields higher rates of return if money is invested wisely. But many people don't know how to invest wisely and are unwilling to pay a stock broker. This is one reason I'm worried about privatising social security. It didn't work for the U.K. Why should it work for us. Too many people do not know how to invest and culturally Americans are unwilling to do so.

Lana said...

In response to Diane...I think Americans are worried that if they invest in the stock market and it crashes again they'll have nothing, rather than if they invested it safely. We're too concerned about having some money now, rather than more money later.

Dr. Tufte said...

I think Ralph has seen the light - an interest rate rise is neither good or bad on net.

Diane and Lana got a little off topic - which is OK. I'm dubious about private accounts as well - most people have a very inflated view of their own investment style. Usually what they are missing is two elements that diversification can solve: 1) they pursue high returns (that have high risks) without diversifying those risks, and 2) they think the only way to reduce risk is to lower their return - and again the mesage is that diversification can handle this if they just do it.