Why Do Interest Rates Fluctuate and Change?
Interest-rate movements are based on the simple concept of supply and demand. If the demand for credit (loans) increases, then the interest rates will also increase. This is because there are more buyers, so sellers (lenders) can command a better price, (i.e. higher rates). However, if the demand for credit reduces, then interest rates decrease. This is because there are more sellers than buyers, so buyers can command a lower better price, (i.e. lower rates). When the economy is expanding, there is a higher demand for credit so interest rates increase, whereas when the economy is slowing the demand for credit decreases and so do interest rates. This leads to a fundamental concept: A slowing economy will lead to lower interest rates, while a growing economy will lead to higher interest rates. A major factor driving interest rates is inflation. Higher inflation is associated with a growing economy. When the economy grows too strongly the Federal Reserve increases interest rates to slow t
