Money and Interest Rates
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Money and Interest Rates
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The interest rates on US debt are set by the demand for this debt. The Fed therefore uses open market operations in order to increase or decrease the interest rates on US debt, using its targets in mind. To lower rates, for example, the Fed will spend its money buying US treasuries. This has the affect of increasing the prices on those instruments, which will have the effect of lowering the yield (rate) on those same instruments (The Economist, 2007)
3. Prospects for a change in Fed policy would not likely affect my decision to make a purchase that requires financing. The decision will be based on a large number of factors, price just being of those factors. There are two other things to consider. The first is that Fed policy can be assumed to be built into the markets. Prices in liquid markets are based on the best possible public information. Therefore, if I know about the pending change in the interest rates, that is public knowledge and will already be priced into the market rates. Any speculation I may have about interest rate changes is probably based on less information than what the market is already using,
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