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22
Jan

Key Indicators That Affect Rates

What are the key indicators that affect interest rates?

Predicting the rise and fall of interest rates can be quite complex. There are some general factors that affect rates and pricing like the economy, money supply, the bond market and the political climate to name a few. However, the 3 main influences are the following:

Gross Domestic Product. The Gross Domestic Product, or GDP is the total output of all goods and services produced by the labor pool and property in the United States. It is considered by some experts to be the single most important economic indicator of interest rate changes. An improving GDP performance usually triggers inflationary concerns by the Feds. To counter that, they tend to increase the rate in an effort to control its growth. In the same token, if the GDP shows weak number, the Feds tend to lower rates to stimulate and spur growth.

Consumer Price Index. The Consumer Price Index, or CPI, simply defined is the measure of the average amount of change over time in prices paid by consumers for a fixed market basket of typical consumer goods and services. If the Consumer Price Index shows higher than expected numbers, it is typically considered an inflationary trigger. The Feds are inclined to raise interest rates in an attempt to temper its growth. Contrarily, a declining trend of the CPI can cause interest rates to drop.

The Unemployment Rate. If a person loses his or her job, he or she is unable to pay debts such as credit card balances, mortgages, car loans, etc., collectively will affect the markets as there is less money there is to put back into the economy. To ease this concern and situation, rates are usually lowered. Consequently, too much debt causes interest rates go up. If the unemployment rate is lower than expected, or if there is a downward trend with unemployment figures, this can be considered inflationary – meaning that interest rates may be raised as a means to temper the growth.

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