What Are the Effects of Low Interest Rates?
The Federal Reserve has been working to keep interest rates low ever since the financial crisis, with billions of dollars worth of securitization purchases every month. After years of low interest rates, an article in Bloomberg explained that increases in home purchases and auto loans show that the program is working, and helping other parts of the economy recover as well. Since the Fed has stated that it will continue purchasing bonds until the unemployment rate is significantly lower, banks may be preparing for a continued rise in loan applications.
Mark Zandi, chief analyst for Moody’s, explained to Bloomberg that since the federal spending programs have begun, the housing market and the auto market – two sectors that rely on loans – have seen the largest effects. As a result, employment rates have also benefited, especially in the housing construction and vehicle manufacturing, to further continue the trend and help the markets improve.
The Fed also mentioned at the beginning of the spending program that the timeline would be tied to the unemployment rate. While the rate is falling, it is still far from the end goal of 6.5 percent – meaning these rates are likely to stick around for some time.
While the Fed’s monthly spending isn’t new, the results are just beginning to be seen in the housing and auto lending industry. And since the Fed has said that it isn’t going to hold back for some time, lenders may be seeing an increase in applications. To combat this, loan management software and loan origination software can help financial institutions adapt. With lending software, the expected rise in applications can help a bank expand and profit with the newfound growth.