Interest rates in America were expected to rise, due to the poor economy. When the cost of goods rises too fast, it is usually because of an increase in demand. So interest rates are increased to slow consumer spending. A raise in interest rates and inflation is bad news for the consumer, especially if they want to purchase something on credit as it will cost them far more.
A raise in interest rates and inflation is bad news for the consumer, especially if they want to purchase something on credit as it will cost them far more.
However, according to The Star Press, “Inflation has eased since last fall and is expected to stay tame. In 12 months that ended in March 2012, prices rose 2.7 percent. That’s below last year’s peak year-over-year rate of 3.9 percent.”
This is good news for the economy, as the expected rise in interest rates may not be needed, which should encourage spending and bring unemployment down. According to Trading Economics, United States unemployment figures were down to 8.2% in March 2012, and although this is an improvement on the previous 18 months figures, it is still too high. So, the Federal Reserve has announced that they intend to keep interest rates below 0.25% until 2014 to help stimulate economic growth.
The consumer perspective
What does it mean for consumers? Well what it really means is that the Government wants the consumer to shop America’s way out of economic crisis. That might be good for the country, but is it good for you as a shopper? While it may enable you to purchase expensive items on finance now, what happens when the economy is growing and interest rates rise in 2014? It means you will be worse off, as you will be paying a higher interest rate on your expensive purchases.
…more than seven in ten reported in May 2010 that they had bought less expensive brands.
Given that excessive spending was to blame for the current economic crisis, will the average American consumer be willing to spend more, to enable the economy to grow? According to studies by the Pew Research Center, “A great majority of Americans have ‘‘simpliﬁed’’: more than seven in ten reported in May 2010 that they had bought less expensive brands.”
Whether the trend to spend less and purchase less expensive brands will continue once the country comes out of the recession remains to be seen. But according to a Survey by Euro RSCG Worldwide, 2010, 79% of Americans admired people who had no debt and made minimal purchases, and only 15% respected those who led luxury lifestyles.
With an abundance of online information now available to enable consumers to make more cost effective choices, it seems unlikely that the majority of American’s will return to excessive spending in the near future, instead focusing on less costly, high value alternatives.