For both investors and speculators, the fluctuation of prices is a good thing if you have a winning position. Virtually the only sure bet in the stock market is that prices will change. It takes a vigilant trader if one wishes to preserve its capital in this hostile market. What causes such an environment? That is known as price stability.
During the 1970s and early 1980s inflation was historically high and it was thought to be a disruptive economic influence. Specifically, prices accelerated in 1973 through 1974 and 1979 the rate of inflation was 13.3%, the highest rate in US peacetime history. Then, two back to back recessions (1980 and 1982), caused primarily by restrictive monetary policy aimed at ensuring inflation, reduce inflation to the 4% range by the 1980s. And inflation then began to creep upward in the late 1980s and was dampened by the recession in the early 1990s. The 1990s and early 2000s were notable in that they were marked by the nation’s longest period of economic expansion, 10 years and very modest rates of inflation.
Interest rate stability refers to the swings or volatility of interest rates over time. Large interest rate fluctuations introduce additional uncertainty into the economy and make it hard to plan for the future. Furthermore, periods of high interest rates inhibit consumer and business spending. In particular, purchases of big-ticket items that tend to dry up support economic expansions are highly interest-rate sensitive. For business, these are capital expenditures like plants and equipment purchases and for consumers, the purchase of a home. In a similar manner, the extremely low interest rates in the 2001 to 2002 session stimulated record housing sales and renovation work which in part contributed to the mildness of that recession. In today’s economy we are confronted with unusual economic conditions and it is doubtful that the economy will recover within the decade.
If you enjoyed reading this finance topic then you may be interested in short term trading strategies as well as how to use a practice account with real data.