![]() ![]() When interest rates are kept extremely low, people can afford to take on more debt, because the monthly payments cost less. The real estate market is especially sensitive to rate changes, because a home is usually the biggest purchase a person will make in his or her lifetime, and the vast majority of purchasers rely on large mortgages to complete the purchase. Additionally, banks and other financial institutions are more likely to lend out money for high-priced items. When interest rates are kept low, it’s easier for governments to spend more money than they take in, because debt is cheap. ![]() Beginning in 2017, the first year of the Donald Trump presidency, the Fed began to more aggressively raise rates, but it only briefly topped 2 percent in 20 before the Fed once again slashed rates to near-zero as part of its plan to address the effects of the Covid-19 lockdowns. However, from 2009 through 2016, interest rates were consistently much lower than 1 percent. From 1980 to 2000, the Fed’s federal funds rate - the primary driver of interest rates economywide - rarely dropped below 4 percent, and it was common for interest rates to be 5 percent or higher. One of the primary tools the Fed used to accomplish its goals was to keep interest rates at near-zero for years on end. The strategy behind the flood of quantitative easing, government takeovers, stimulus checks, and government welfare programs that followed was that the Fed, working in conjunction with Congress and the White House, needed to prop up the economy to keep it from sliding completely off the cliff. ![]()
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