Site Loader
Rock Street, San Francisco

As seen from the figure above the Fed hiked the federal funds rate for the first time in nearly seven years since 2006 in 2015 by 25 basis percentage points to take it to 0.25-0.5% from, nearly a rate of zero. The rate was further increased in 2016 by another 0.25 percentage basis points to take it to 0.5-0.75%. Currently the Fed rate stands at 1.25-1.5% after the Fed’s latest hike. In their release of the new Fed rate in December this year the Fed announced a forecasted review of the rate three times for the year 2018, with a projected hike of 2.1% by the end of next year, with the strong economic growth and labor growth thought to be a factor, combined with an expected continued unemployment decrease over the next year. Interest rates are therefore lagging economic indicators as they are indicative of the economic position the country was and will be in future. Some of the economic indicators that affect interest rates are the inflation rates which give rise to high interest rates to curb the inflation and the decrease in unemployment rates which necessitates the increase in interest rates as it is assumed more people will be spending in the market.The increase in the Federal Funds Rate has a great impact on the company’s profitability, sales and growth. Due to the fact that Fed rates impact the company’s prime rates-the rates on the loans they give on their customers’ credit-an increase in the Fed rate would necessitate the increase in the bank’s prime rate as seen from the bank’s increase of its rate to 3.5% almost immediately the Fed hiked the rates in 2015 (Cox Para. 21).Increase in the interest rates in the country boosted the company’s net interest income, which equated to between $1 billion and $2.4 billion in added revenue of the $47 billion earned in the 2016 financial year. Therefore, however small or large the rise in interest rates would be, Wells Fargo would benefit (Maxfield Para. 2). Given therefore the positive growth of the economy and its projected growth over the coming year, I would recommend that the company increases its prime rates but in a balanced manner.

Post Author: admin

x

Hi!
I'm Glenda!

Would you like to get a custom essay? How about receiving a customized one?

Check it out