When interest rates change, it is the result of many complex factors. People who study interest rates find that it is as difficult to forecast future interest rates as it is the weather. Since interest rates reflect human activity, a long-term forecast is virtually impossible. Some of the major factors which help to dictate interest rates are explained below. Supply and Demand for Funds Interest rates are the price for borrowing money.
Interest rates move up and down, reflecting many factors.
The most important among these is the supply of funds, available for loans from lenders, and the demand, from borrowers. For example, take the mortgage market. In a period when many people are borrowing money to buy houses, banks and trust companies need to have the funds available to lend. They can get these from their own depositers. The trouble is, this source of funds is more expensive.