What is the main purpose of FED increase and decrease interest rate?
When inflation is high or is rising generally interest rates will be raised to reduce people spending their money and slow down the rate of inflation. As interest rates rise people will be less willing to borrow money and more willing to keep their money earning a good interest rate in the bank. People will reduce their spending and invest less into alternative assets but instead put more into their bank savings. When inflation is too low and the economy is starting to slow down generally interest rates will be raised to encourage more spending to restart the economy again. As interest rates drop more will take their saving out of their bank accounts as is starts to earn very little in interest rate and more will be willing to borrow as it becomes cheaper to borrow. People will start spending more and investing their money outside of bank savings.
"Newspapers write a lot about the central bank stopping ""cheap money"" in the US. What is that exactly and what are the implications for the stock market? An interest rate is simply defined as the price of money.  So if money is cheap, it must mean there is a low interest rate compared to normal.  If milk is cheap, we're comparing it to past prices or prices at competitors' stores.  Same with money. I don't think its fair to say just because the supply of dollars rises that the value of dollars will go down.  Value or price is determined by supply and demand, not just supply.  Its possible for the demand for dollars to be stronger than the rising supply, which would drive the price higher.  A good example of this is to look at the value of the dollar recently.  The Fed has been printing $85 billion per month, yet the value of them is going up compared to foreign currencies, gold, and just about everything.  Why? Because the Fed has merely threatened to stop, but it hasn't stopped.  That alone was enough to increase demand above supply.  So if you want to know what will happen, take a look at what IS happening. When cheap money ends, the value of the dollar will go up, interest rates will go up.  This will be a drag on the economy.  It will be more difficult for companies to show profits and earnings should decline.  In addition, those who have grown accustom to the easy money and have over-leveraged themselves (ie REITs) could go bankrupt." There do not appear to be any specific legal measures to prevent bankruptcies.  In fact, they seems to be part of the means for which rates are raised, for the consequent aim of lowering inflation. See:  The Budgetary Implications of Higher Federal Reserve Board Interest Rates by Dean Baker, Center for Economic and Policy Research. The Federal Reserve Board (Fed) is widely expected to start raising   interest rates some time in 2015. The purpose of higher interest rates   is to slow the economy and prevent inflation. This is done by reducing   the rate of job creation and thereby reducing the ability of workers   to achieve wage gains. rawbdor is spot on both in terms of the divident yield and the ratings.  BAC and C should have no dividend at all. They have liquidity due to the FED but they still have loads of debt that needs to be written off. For all intents and purposes they bankrupt but are kept alive as zombie banks by the FED and the market is pricing them as such.   As we've seen time and again, the ratings agencies are lagging indicators regarding value. Once the market loses faith in an enterprise, the ratings agencies have no choice but to downgrade.   The *only* reason the major agencies are in business is because they are a state sanctioned oligopoly. Essentially mutual/ money market funds cannot operate without these agencies by law. "I don't have experience with TSP in particular, but they look to be roughly the same as 401(k) loans. If the ""G Fund rate"" is equal to the yield of government bonds, then your main risk is the risk that yields increase, which means the interest you're paying is less than what you would have earned on the investments. Here are some other things to consider: For any car loan, I would borrow as little as possible with as short a term as possible.  To me, the interest savings and additional risks from borrowing from your retirement isn't worth it." I see that you're invested in a couple bond funds. You do not want to be invested in bonds when the Fed raises rates. When rates climb, the value of bond investments decline, and vice-versa. So that means you should sell bonds before a rate hike, and buy them before a rate drop. "First of all, just for the sake of clarity, the Federal Reserve doesn't actually ""print"" money - that's the job of the BEP. What they do is they buy US Treasury bonds - i.e., loan money to the US government. The money they do it with are created ""from thin air"" - just by adding some numbers in certain accounts, thus it is described as ""printing money"". The US government then spends the money however it wishes to. The idea is that this money is injected into the economy - since the only way the US government can use the money from these loans is to spend them on buying something or give it to some people that would spend them.  As it is a loan, sometime in the future the US government would pay these loans back, and in this moment the Fed would decide - if they want to ""contract"" the supply of money back, they just ""destroy"" the money they've got, by erasing the numbers they created before. They could also do it by selling the bonds they hold on the open market and then again ""destroy"" the money they got as proceeds, thus lowering the amount of money existing in the economy. This way the Fed can control how much money is out there and thus supposedly influence inflation and economic activity.  The Fed could also inject money in the economy by buying any assets after creating the money - for example, right now they own about a trillion dollars worth of various mortgage-based securities. But since buying specific security would probably give unfair advantage to the issuers and owners of this security, usually US treasury bonds if what they buy. The side effect of increased supply of money denominated in dollars would be, as you noted, devaluation of dollars compared to other currencies." "I'm not intimately familiar with the situation in Australia, but in the US the powers that be have adopted an interventionist philosophy. The Federal Reserve (Central Bank) is ""buying back"" US Gov't debt to keep rates low, and the government is keeping mortgage rates low buy buying mortgages with the proceeds of the cheap bond sales. While this isn't directly related to Australia, it is relevant because the largest capital markets are in the US and influence the markets in Australia. In the US, the CPI is a survey of all urban consumers. If you're a younger, middle class consumer with income growth ahead of you, your costs are going to shift more rapidly than an elderly or poor person who already owns or is in subsidized housing, and doesn't spend as much on transportation. For example, my parents are in their early 60's and are living in the house that I grew up in, which they own free and clear. There are alot of people like them, and they aren't affected by the swing in housing prices that we've seen in the last decade." "They say that banks earn 4 - 5% on deposits, so with lower costs they can give away 2-4%. They cite [this article](https://www.wsj.com/articles/u-s-banking-industry-annual-profit-hit-record-in-2016-1488295836) which says that ""return on equity [for banks] up at 9.32%, the highest level since 2013"". But [net interest margin](https://www.fdic.gov/bank/analytical/qbp/2017mar/chart4.html) is lower (2.5%-4.5%). And that's in a good year.  They elaborate in a blog post:  ""Fed Funds rates are supposed to affect deposit rates that banks pay to their customers, as, after all, deposit is a form of short term loan from depositor to the bank (see the explanation in our recent blog). However, as WalletHub notes in their recent report, it has not actually happened recently. As the report notes, for traditional branch-based banks, savings and checking account rates are virtually unchanged. You are probably getting the same 0.01% in your checking or savings account? Meanwhile, rates on your credit card went up by 0.53% since December 2015.""  ""So why aren’t deposit rates increasing? One reason often cited, is actually the relative decrease in the levels of competition in the U.S. market (as we described in our earlier blog). While there are still thousands of banks in the U.S., 4 control ~40% of the assets and close to half of the assets (loans). The other reason could be, perhaps, that after almost 10 years of getting close to zero in your bank account, you will forget that it could be any different. In fact, bank executives are puzzled why consumers are not “demanding” more on their deposits. You can walk to the branch and “demand” more money from your bank, but you may end up in county jail. The only other viable option is to take your deposits elsewhere, or vote with your feet."" (https://blog.meetbeam.com/draft-why-are-lending-rates-going-up-but-deposit-rates-are-not-76e050b382af)  ""Beam makes money by providing value-added services to our partnering bank and other financial service partners in the banking ecoysystem."" That sounds like they might be selling your data?"