Friday, December 9, 2011

Federal Reserve Current Prime Interest Rate - Market Update

           Federal Reserve, every now and then takes care of the economy and the growth of it. The Federal Reserve tries to balance the economy thereby, stipulating the growth, and make sure that no problems are hovering around in the economy.

          For this reason, the Federal Reserve maintains the rates, which help in taming the inflation and other data. All this is taken care by the Federal Reserve and it does change the fed rate very now and then, so that it could balance the economy.

         The inflation and other currency data is taken in to consideration and the rates are fixed for a certain period of time.

        What are interest rates, Prime fed rates, lending interest rates and many others? What is the usage of these fed rates to the coming public or the banks or industries in a certain economy? Firstly, prime rate is a reference interest rate which is used by banks.

         They use it to lend money to their customers against which they charge this particular fed rate. This is the main use of interest rate.

       When you buy something big or unaffordable, you try to pay them in installments. Here, the interest rates come in to play. Even when you are in a state of debt, the person who gives you money or the company charges you of a particular interest rate which is in most cases, equal to the prime interest rate, in the case of big financial institutions or banks.

      These are some of the important uses of rates. Paying installments and others come under this 'prime interest rates' thing.

         Why does the Federal Reserve always change the prime fed rates? Because, the inflation always changes and the economy never remain stable.

         If the economy is stable and everything seems to be fine, then there would be no reason to increase or decrease the fed rates.

         But, if the inflation numbers are going up and the economy in turn, is degrading, then there is a reason and every necessity to increase the fed reserve rate.

         And again when the inflation numbers come back to their original ones or are stable, then the Federal Reserve will see to cut down the rates and keep the economy going on.

        The prime rate is also used as an index which helps in calculating the rates for Adjustable rate mortgages [ARM]. It is also widely used in the case of loans. The current prime interest rate set by the Federal Reserve is '3.25' %.

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