Corporate Financing in the United States

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MONETARY POLICIES 3

CorporateFinancing in the United States

MonetaryPolicies in the United States

MonetaryPolicies in the United States

TheFRB interest rates have been hiked for the first time in ten years.The issue has brought up mixed reactions amongst individuals. Theconfusion owes it to the fact that the rates have been at near 0%since the year 2006- a history of seven years. Consequently, the newshort-term rate targets a range of 25 to 50 basis points. Theprojections provided by the Fed policymakers indicate that theyexpect the rates to be revised upwards by one percentage point afterone year (Ewing, 2015).

Theaction has affected the United States banks that responded quickly tothe announcement of the increase. The banks made a quick move tomatch the increase by the Fed. They raised their prime lending ratesthat serve as the benchmark for consumer’s interest rates. Forexample, few moments after the announcement, Well Fargo indicated itsintention to revise its prime rates upwards from 3.25% to 3.5%(Ewing, 2015).

Theaction is expected to cause an increase in the rates charged forvarious financial services such as mortgages. Homeowners withadjustable-rate mortgages are expected to loose from the activity.They are likely to experience an increase in their payments after theadjustment of their loan rates. In contrast, homeowners with fixedinterest rates are expected to gain from the activity as theyexperience minimal increases in their financial obligations (Huang, &ampWei, 2003).

InEurope, the increased interest rates are not expected to cause muchalarm. Europe is considered full of many economic stimuli to feel theeffect of the United States rate adjustment. Specifically, inaddition to the weak currency, Europe has a slight move from lowenergy levels (Ewing, 2015).

References

EwingJ., (2015, 15 Dec). Fed rate move may not hurt Eurozone, but it won’thelp much either. TheNew York Times.Retrieved on January 15, 2016 fromhttp://www.nytimes.com/2015/12/16/business/international/a-fed-interest-rate-increase-is-unlikely-to-have-large-effect-in-eurozone.html?_r=1

Huang,H., &amp Wei, S. (2003).&nbspMonetarypolicies for developing countries: The role of corruption.Cambridge, Mass.: National Bureau of Economic Research.

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