IMPACT OF INTEREST RATES ON FLORIDA’S ECONOMY 2

Impact of Interest Rates on Florida’s Economy

Interest rates have a major impact on economies. Generally, the Federal Reserve raises
interest rates when inflation rises beyond a targeted figure and lowers the rates when inflation
drops (Johnson, 2017). Interest rates are usually effective in controlling inflation because of their
ability to influence various economic measures and behaviors, such as savings, consumer
spending, and cost of borrowing.
In Florida, interest rates have a major effect on the local economy because they directly
affect some of the state’s most important economic sectors. Trade and tourism play a key role in
Florida’s economy. These two sectors also happen to be very sensitive to variations in interest
rates.
High interest rates increase the cost of borrowing. Loans and interest payments on credit
cards become expensive (Johnson, 2017). As a result, the level of borrowing and spending also
reduces considerably. In particular, people who have existing loans are likely to have less
disposable income as more of their income is spent on making interest payments. Thus, in an
environment of high interest rates, people are likely to spend less and save more.
These economic actions have a significant impact on local trade and tourism, two of
Florida’s most important economic sectors. Reduced consumer spending leads to a fall in local
trade as businesses sell fewer goods and services. Hotels and other businesses in hospitality
industry are also likely to experience reduced income levels as a result of reduced consumer
spending.

IMPACT OF INTEREST RATES ON FLORIDA’S ECONOMY 3
Thus, a raise in interest rates generally has negative effects on the economy of Florida
because of the types of the state’s main economic activities. Conversely, a lowering of interest
rates has a positive effect on the local economy.

IMPACT OF INTEREST RATES ON FLORIDA’S ECONOMY 4

References

Johnson, H. G. (2017). Introduction: Macroeconomics and Monetary Theory.
In Macroeconomics and Monetary Theory (pp. 1-4). Routledge.