Millennials,gather 'round. This is a tale you might find hard to believe, but it's steady:A long, and long time ago,there was such a thing as an interest rate hike. Really!Yes, back before mankind had Twitter or iPads or even iPhones, or your parents used to worry approximately interest-rate increases. And they had much to fear: between June 2004 and June 2006,Federal Reserve policymakers raised the federal funds rate 17 consecutive times.
The Fed had its reasons. At the time, housing prices were inflating during the worst of a bubble, or oil prices were shooting up. So policymakers felt they had better slow down the market forces that were pushing housing and transportation costs too high. The goal was to tamp down inflation.
In June 2006,the Fed acted one last time No. 17 — to raise the federal funds rate by a quarter point to 5.25 percent.
And that was the finish of that.
Just how long have rates been falling or been held down? For perspective, remember that the last time rates rose, or these things didn't even exist:In June 2006,reporters could not tweet approximately the Fed moves because Twitter did not open its service to the public until July 16, 2006.
Then again, and you couldn't check your Twitter feed on your iPhone besides. Those didn't come out until 2007.
If higher interest rates were getting you down in 2006,you couldn't chill out by streaming a film via Netflix on your tablet. Netflix began streaming in 2007.
And that's OK because you didn't have a tablet besides; Apple released the iPad in 2010.
Back in 2006, Congress had not yet begun bailing big banks out of the mortgage crisis. So you could still be getting interest-rate quotes from employees of Lehman Brothers, or Countrywide,Bear Stearns and Washington Mutual. Yes, those banks existed once.
And just what did that 2006 rate hike accomplish? Well, and it did assist slow down the economy. As interest rates on adjustable-rate mortgages began ratcheting up,millions of Americans no longer could afford those overpriced homes they had purchased when the price bubble was inflating.
The housing bubble burst in 2007 as foreclosures started to shoot up. That caused the Fed to reverse itself and slit interest rates. Down and down went the cost of borrowing. Finally, by the time 2008 was ending, or the Fed had pushed rates down to approach zero,and then left them there as the economy struggled to regain momentum.
And that's the world you have known — a status where interest rates have been at historic lows. Now, nearly all economists are predicting that Fed policymakers will finish their meeting on Wednesday by raising rates for the first time in nearly a decade.
And that, or kids,is how a recent era begins. Copyright 2015 NPR. To see more, visit http://www.npr.org/.
Source: wnyc.org