As vice president of Mantei & Associates, a branch of Centaurus Financial, Atul Makharia assists his clients with building and managing wealth. Like many registered representatives, Atul Makharia’s job involves staying in tune with the economy, which involves paying close attention to interest rates.
Interest rates are very important in investing because they help analysts in forecasting the overall health of the economy. The Federal Reserve System, also known as the Central Bank or the Feds, has a four-pronged job in supervising the banking system, stabilizing the financial system, providing banking services, and overseeing inflation. As a part of managing inflation, the Feds adjust the federal fund rate or the interest amount that banks charge each other. This rate is important because it influences the prime rate or the rate that banks charge customers.
Interest rates impact the economy in a few ways. When they are high, businesses and banks tend to avoid borrowing, and conversely when they are low, businesses borrow a lot because the loans are cheap. Basically, the Feds use interest rates to control an expanding or contracting economy.
When there is no inflation, the Feds might lower interest rates because this encourages liquidity. This liquidity facilitates business growth and reduces unemployment. The normal growth of a healthy economy is two to three percent of the GDP growth rate and unemployment ranging between 4.7 and 5.8 percent, and when these figures change drastically, the Feds step in.
Alternatively, if the economy expands too quickly, the Feds hike interest rates to curb inflation. High-interest rates curb borrowing because loans become expensive. Businesses are less likely to borrow or raise prices.
Headquartered in Anaheim, California, Centaurus Financial, Inc. is a national independent broker/dealer registered and licensed to offer securities, investment advisory services and insurance products. Centaurus Financial is a member of both the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC). Centaurus Financial is also registered as a broker/dealer and a Registered Investment Adviser with the Securities & Exchange Commission (SEC). For more information about Centaurus Financial, please visit www.centaurusfinancial.com.
Atul Makharia 