Mary: This is Mary Walden with economist MW welcoming you to the economic perspective. Today’s program tries to understand interest rates. Mike, whenever there’s a discussion about the economy, the topic of interest rates usually comes up. Why are interest rates always a concern?
Mike: Summary Answer
- Because they represent many facets of the economy
- Reflect inflationary expectations – the more inflation is expected, the higher are rates
- Reflect growth expectations – faster growth usually means more demand for loans and higher interest rates
- Also reflect rewards for saving and cost of borrowing
- Here the key is the real interest rate – observed rate minus inflation
- Higher the real rate – more benefits from saving
- Lower the real rate – cheaper borrowing
- I’m MW
Mary: And I’m Mary Walden for the North Carolina Cooperative Extension Service.