When central banks raise interest rates, the impact is felt far and wide. Mortgages become more expensive, house prices might fall and unemployment can rise. So why do central banks do it? This film tells you why.
00:00 – Why should you care about rising interest rates?
00:45 – What are interest rates?
01:36 – What do central banks do?
02:14 – Why do central banks raise interest rates?
03:12 – How do raised interest rates affect consumers?
04:30 – How do raised interest rates affect businesses?
05:20 – What are the risks of raising interest rates?
06:05 – How do interest rates affect inflation?
Sign up to our weekly finance newsletter to keep up to date:
Watch our video on whether higher inflation is a cause for concern:
Listen to our podcast on whether interest rates will trigger a recession in America:
Why interest rates may rise sharply to fight inflation:
Which housing markets are most at risk?
Is Turkish President Erdogan’s monetary policy as mad as it seems?
Why are investors worried about recession in America?
Do the poor face higher inflation?
Has the Federal Reserve made a mistake on inflation? …(read more)
LEARN ABOUT: Investing During Inflation
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
Inflation hits people a lot harder than a crashing stock or housing market as it directly affects people's cost of living that people immediately feel the impact of. It's not surprising negative market sentiment is so high now. We really need help to survive in this Economy. The fin-Market;s have underperformed the U.S. economy as fear of inflation hammers the prices of stock;s and bonds. My portfoliio of $250k is down to $192k any recommendation;s to scale up my return;s during this crash will be highly appreciated.
Despite the economic downturn, I'm happy ☺️. I have been earning $60,200 returns from my $10,000 investment every 13 days
How does raising interest rates control inflation? It doesn't, it only postpones it because we keep printing money to pay bills without having generated any value first. We print WAY too much compared to the increases in GDP, and eventually the bubble has to pop and the consequences are inevitable, and worst than they would have been if we weren't that dumb. The pandemic stopping all supply chains was just the final blow, and the population aging and employees not being replaced will also hurt productivity. Quantitative easing won't work anymore, nor will quantitative tightening. It is going to crash now, greatest depression ever.
They need to slow down the rate increases as it takes time for inflation to drop. Inflation certainly impacts everyone especially families that live pay check to pay check. But what's worse than living pay check to pay check is there is no pay check at all. Unemployment rate will go up then we are in recession. After that, inflation will slow down and they will gradually decrease the interest rate. Once that happen, the economy and stocks will come back up. Just gotta ride it through.
Central bank increases interest rate to reduce inflation (aiming for target of 2% inflation). This benefits banks because their reserve funds are now earning higher interest. They therefore have to charge higher interest on their own loans to consumers (businesses and people) to make it financially worthwhile (i.e. more than central bank rate), otherwise they're better off keeping their money in the reserve fund.
People with mortgages on variable interest rates will be directly affected, as their repayments will be higher. This leaves them with less disposable income to spend, which the government hopes will persuade businesses to lower their prices and thus increase consumer spending, which will pull back (increase) inflation.
People wanting mortgages (e.g. first-time buyers) will also be affected since interest rates on new mortgages will be higher. This will cause house values to fall (reduced to attract sales during periods of lower demand). This will also cause people to spend less as their asset values has fallen. Lower spending translates into lower inflation.
Higher interest rates make it more expensive for businesses to borrow and invest, meaning less employees are needed, thus fewer jobs and lower salaries.
Controlling inflation will typically slow down economic activity. Higher inflation means employees need higher wages to buy things. This increases costs for businesses (as employers), who might increase their prices further to make up for it.
It can take 2 years for a change in interest rates to translate into changes to consumer prices, i.e. for consumer to feel the benefits. But raising them too high can cause a crash and recession (economy at standstill or shrinking).
Wait, so what does this have to do with the value of the currency itself? This does not answer the question of what gives the dollar power to begin with. Nor does it address what caused the inflation. Does excessive spending cause inflation? Is that what we're talking about here? The answer to solving a problem is getting to the root of what caused it.
I have been looking for a video that explains this in simple terms, well done.
So that they grow up and serve their masters to the best of their ability.
The best way to describe the present economy is 08' 2.0. Yes stocks are at a discount and things will eventually get better but my monthly living expense is up $3750 from $1600 and I'm left wondering what retirement have in store for me 5years down the line, I'm ill-prepared tbh, my 401k gains are zero-nothing and my stock portfolio?…OH WELL!
What happen when people start withdrawing their money from bank, selling bond 3-10years later. Will it be super inflation again?
Great explanation! I've been trying to find the way to make sense about this whole situation and this video managed to do just that
I understand why you would raise interest rates if you have demand side inflation, but what is the logic when inflation is due to supply side? If war/covid has driven up manufacturing costs, why would raising interest rates do anything but push prices up further?
the only financial institution that can hold commercial paper is a commercial bank. Since when is a central bank a commercial bank?
l will forever be indebted to you I will continue to preach about your name for the whole world to know you've save me from a huge financial debt with just little investment thanks so much expert Mrs Brenda Aguilar
If you can see storms on the horizon and you're on a variable rate, don't wait, fix your mortgage. Even if it's just for 2 years. I fixed mine for 5 and we're sheltered.
nobody can stop the cycle as they are all partners in crime. for example: swiss france yield has been mostly negative than how come they are running the show? they are able to invest in stock markets and give nothing to depositors? All the nations have done the same more or less barring japan and now china after their stock markets have crashed( japan 1989,2014 china).
Govt has kept quiet to address this anomaly.
So when main street goes kaput when stock market crashes companies lay off and govt has no option but to bail them out as they did not encourage savings and everybody gambled on stock markets!
Since 2008 interest rates have not gone up at all keeping on pace with inflation and state of other economics.
Under the rug you will find more bugs as debt is highest its ever been even before the pandemic.
How long this juggling continues is anybody's guess.
Already those folks who bought the stocks at the top are nearly 15% down from the top and still plenty to go.
————————-
There is no need for stock markets around the world if govt were honest and they laid the rules for proper functioning of businesses.
————————-
There are plenty of businesses in the world who are not in stock market nor controlled by govt and they are doing very well.
————————-
THE STANDARD ECONOMIC RULES THAT YOU ARE TAUGHT IN SCHOOL WONT WORK HERE.
انتشار صناعة الطاقة البديلة أو النضيفة بالعالم بشكل متسارع والمحتكر لهذا المجال الصين والهند حلفاء روسيا والبرازيل وتبرز بهذه الصادرات السيارات الكهروشمسية وكهرباء الشمسية للمباني سخونة الماء يقلل الطلب على ألنفط اما إذا اتحدت دول شنغهاي التوسعية النفطية واتبعت سياسة نقدية جديدة تحاكي عالم جديد ستقسم صادرات ألنفط بالعالم لقسمين متساوين والغاز يعد بيد روسيا وايران والجزائر والعراق وفنززيلا والبرازيل والهند والصين أكبر المستخدمين والمستفيدين من تسهيل هذه القوانين الجديدة بالعملات المحلية للحلفاء وبتبادل تجاري يبعد الجمارك بين أعضاء الحلفاء شنغهاي بلاس العشرين
I believe they are making a mistake trying to raise interests to fight inflation, least to some degree. You can use interestrates to cool down an overheating economy that's creating a runaway inflation, however, the limited inflation we're seeing here is to a large part due to sanctions and disruptions to worldtrade, not due to an overheating economy. Regulating interest rates is a tool for fine tuning the economy and inflation, however, the current turmoil is not due to economic activity and the inflation is not directly connected to economic activity. Therefor it's not the right tool to moderate the current economic situation and wont have the desired effect. They should know better.
Not a single mention of excessive government spending or money printing by the U.S. Treasury. Moreover, they imply that inflation in the early 1980s is attributed to President Reagan (a la “blame the republicans) by showing the peak interest rates in early 1981 when he came into office, yet there is no mention of the causes of inflation in the late 1970s.
…So the consumer controls the rate of inflation..?
The Bank of England has raised interest rates from 1.75% to 2.25% -JUST the total utter morons at the bank ( inflation is due to BORIS doing sod all to do something about it along with that other idiot ..rishi ( they wanted inflation to go up so there payments on money borrowed ) would be easy to pay back THATS WHY RISHI did nothing ..
wanted to pay back money borrowed so he could lower tax before the election in 2 years time.
the bank of england raised rates and the extra money goes STRAIGHT into the high street banks vaults.
new prime minester is giving bank bosses NO wage restraints and due to a lot of cons MP have interest in the energy companys ( no windfall tax ) new PM she dare not do that as it will upset the party.
better to give the energy companys money to cut down how much they charge ..( conservatives hand in one of the publics pocket and the banks in the other )
do what france did NATIONALISE the energy companys ..wonder who sold them off in the first place ???
What about reducing the supply of fresh printed money instead of increasing rates? Why in Argentina "the brake" (which is at 75%) does not manages to stop inflation?
Like a forest fire that wipes out the old trees to make room for new growth, bearish periods ultimately establish a new crop of stocks to buy and watch while setting the stage for a robust new uptrend.I have been reading articles of people that grossed profits up to $250k during this crash, what are the best stocks to buy now or put on a watchlist?
Consumers could fix the inflation problem themselves easily – stop paying astronomical prices for goods and services. Simple supply and demand. Using eggs as an example, if we collectively discipline ourselves a bit to NOT buy eggs at $4 a dozen, those eggs will sit on the shelf, the sellers and farms will take a loss and have to throw out bad product causing them to lower the prices to sell them. Economics 101. STOP BUYING THIS OVERPRICED BS. Find cheaper alternatives for the time being and the prices will go down, trust me. It takes everyone working together.
Not a single mention of what CAUSES inflation in the first place: Government spending (printing money out of thin air).
$4.5 Trillion to address the "pandemic."
I need to study more economics
Consistently investing with proper guidance in quality dividend paying companies is a relatively easy strategy to create wealth. Well, I copy trade from daily signals of Mr Sam.
I'm forever grateful to Mr Sam Deymon for his constant and excellent strategies in trade. I was at first scared of investing under his company platform but I summon courage and gave it a shot and behold I made my payouts with an impressive results. Thank you sir for your impact and guidance in my investment. Here's a golden opportunity to get started.
Interesting
Is anybody paying attention to aggressive advertisements and online shopping which is causing hyber consumption! Seen and bought anywhere anytime! The legacy of Amazon.
The title should be: "How is The Economist connected to the FED?? Through The Rotschilds and Rockefeller's and promoting their agendas"
まじこの女性イギリスアクセント好きになれない ネガティブすぎる、まじロンドン
We're not in the financial markets and economy in the 1970's❗
The media trying to man splain the obvious to help them/ there over lords to brain wash u what is coming. Clown garbage
LOL. Keep Them Poor! You'll Be Happy Not Owning ANYTHING!
I would like to see a video on where all the interest money goes when the Fed raises rates. Especially where the interest increase money goes on existing variable rate loans like credit cards and variable rate real estate loans. Also, I would like to see how they make sure none of the money is misappropriated and the auditing processes of the Fed and Treasury.
Usury. Deut 33
How about we hold the terrorist business owners at gunpoint and tell them that if they start prioritizing profits over humanity we will shoot their testicles off?
Even if a non dollar-denominated asset sees no real gains during inflation that's still much better than holding cash and seeing your real purchasing power undermined. In other words, sometimes you have to chose between the lesser of two evils.
Raising intrest rates is to punish (tax) the people not paying back their deficit spending (dept).
Why you taxing me for someone else's defaulting on loans (deficit spending).
Why you giving away free money to people not intending to pay back said loan? Causing inflation
All deficit spending is on government jobs and said government jobs will pay back said loan.
All said deficit spending, all said balanced budget, all said loans paid back.
It’s paying it real and am a witness to the hack transfers of Maskoffweb
More excuses for the manipulation
Native American Reserves or what reserves? I want to invest in this reserve or reserves if they deserve the premium above the tax free gambling and tax free cigarette trade within these reserves, this is the only reserve that I can see as a potential investment relative to a banks capital reserves
So banks with reserves keep reserves to reinvest in federal debt, is this the statement if I am not mistaken?