The Fisher Effect is a phenomenon describing the relationship between interest rates and inflation - has been known to economists for some time, but it was only in the early 1980s that interest rate targeting became popular. The idea is that central banks should target rates of inflation and other variables as a means of stabilising the economy, particularly during adverse economic times. The idea of 'targeting' interest rates is to influence the economy by influencing interest rates.Interest rates and inflation are closely linked, but how well do you really know the effect? Inflation is a measure of the change in prices of goods and services over time. As interest rates change, inflation changes. Think about what happens when you borrow money for your car or mortgage. Your monthly payment goes up, but so does your interest rate. So when you're paying off a loan or paying for a car, it's important to know what the current interest rates are so you can make sure that you're paying off your loan or car at the most affordable rate possible.Customers often say they're looking for a way to reduce their floating rate assets. The Fisher effect gives them the opportunity. This cash value CD lets you apply a "fisher" interest rate to your CD. And, better yet, it lets you pay off your CD early with the interest you earn. When you sell your CD at maturity, you can apply your proceeds to the next CD. It's a great way to switch strategies, increase your flexibility and help lower your costs of living.
