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The Federal Reserve today made its final interest rate decision of 2024, capping a year during which the central bank provided some financial relief to inflation-weary borrowers in September by ...
As the International Monetary Fund explains, long-lasting inflation results from an imbalance between the money supply and the size of the economy. An overabundance of money reduces its purchasing ...
The Bank of England has announced interest rates have been cut for a second time this year. The Bank’s base rate has dropped from 5 per cent to 4.75 per cent, following on from a similar cut in ...
If the true value of the project is only known to the borrower, the lender must incur a monitoring or auditing cost in order to reveal the true project returns and receive full re-payment. The size of the external finance premium that results from these market frictions may be affected by monetary policy actions.
Monetary inflation is a sustained increase in the money supply of a country (or currency area). Depending on many factors, especially public expectations, the fundamental state and development of the economy, and the transmission mechanism, it is likely to result in price inflation, which is usually just called "inflation", which is a rise in the general level of prices of goods and services.
Fixed-rate mortgages are vulnerable to inflation risk, which means that borrowers with such mortgages are better off under unexpectedly high inflation (as the inflation lowers the real present value of their loan repayments), while they are worse off if there is a drop in inflation that lowers interest rates.
Chief among them is that inflation remains sticky: According to the Fed's preferred gauge, annual "core" inflation, which excludes the most volatile categories, was 2.8% in October.
“Examples include governments with high debt levels and borrowers on fixed repayment plans. Think of someone with a 30-year fixed rate mortgage with a set payment each month.”