Extremely non financially savvy person here. Is the idea that more people then get home loans, or there is less to pay back on credit cards? I keep seeing this and don’t quite understand.
Thanks so much.
In: Economics
Lower interest simply implies more activity in the economy. Eg home loans, car loans, general spending etc…
The Federal Reserve lowers interest rates in order to stimulate growth during a period of economic decline (COVID-19) That means that borrowing costs become cheaper.
However the underlying mechanism of artificially suppressing interest rates carries a number of deleterious effects that are deferred to a future time.
Much of the developed world has experienced a low interest rate environment since 2009 as monetary authorities from around the globe cut interest rates to effectively 0% in order to stimulate economic growth and prevent deflation.
Just as there are advantages to a low interest rate environment, there are also drawbacks, especially if the rates are kept extremely low for a long period of time. Lower borrowing rates mean investments are also affected, so anyone putting money into a savings account or a similar vehicle won’t see much of a return during this type of environment.
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