Global Interest Rates
Chart of the Week for Oct. 10, 2008 - Oct. 16, 2008
While the U.S. Federal Reserve ("the Fed") cut the Federal Funds Target Rate in the 4th quarter of 2007 and 1st quarter of 2008, other key interest rates around the world held steady or declined only modestly over the same time period. However, on October 8, 2008, the central banks of several countries cut interest rates in an effort to increase the flow of money across the global economic system. The coordinated reduction reflects the recognition by the central banks of the intertwined nature of the global economic system.
In the U.S., the Fed's target rate has historically been the key interest rate used to help the Fed implement monetary policy in the U.S. If the Fed believes the economy is slowing or deflation is a concern, they may implement an expansionary policy by lowering interest rates. Lowering interest rates tends to make borrowing cheaper and hopefully increase the pace of economic growth. One of the risks of lowering interest rates is the possibility of higher inflation.
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