Interest Rates => Economy => Newbie question

Discussion in 'Economics' started by trainee2006, Oct 2, 2006.

  1. The media keeps talking about how the Fed changing interest rates can affect the economy. Does it really?
    When the Fed cut interest rates, my credit card rates didn't go down! Neither did my store or bank credit cards.
    -- And not everyone owns a house or co-op-or condo so how is the Fed's movements palpable to those segments of the population who don't have any kind of residential equity?
    -- And finally, a sound bite that keeps coming across CNBC-Bloomberg-Marketwatch is that the Fed's actions take 6 to 18 months to filter into the economy. Could someone walk me through this 18-month-long journey from Fed Decision to the 18-month destination of "effect on the economy"?
  2. Neodude


    In reality anticipated interest rate changes don't change anything. For an interest rate change to effect the economy it has to be unanticipated, thus it creates a short term shock. If it is anticpated it has no effect on spending and inflation in the short run as well as the long run.