How Does the DOW Triple-Digit Drop Affect Interest Rates?

Tuesday morning, U.S. stocks experienced their steepest fall in three weeks after the release of positive economic data, including the strengthening U.S. dollar and an improving housing market. The DOW Jones Industrial dropped 183.94 points by 11:01 a.m. EST, or 1.01 percent. In addition, the Standard & Poor’s 500-stock index dropped 0.99 percent, and Nasdaq Composite dropped 57.53 points.

Mixed Data About Economy Causes U.S. Stocks to Fall

Indications that the economy is on track to improving, the anticipation of interest rate hikes and negative data about manufacturing reportedly led to the drop in U.S. stocks Tuesday morning. There was mixed data — both positive and negative — released between Friday and today. Orders for manufactured durable goods such as aircraft, metals and electrical equipment fell 0.50 percent, reports USA Today.

Economist Cliff Waldman of MAPI told the publication, “It is clear that the economy’s post first-quarter reawakening will not be as strong as in 2014.”

At the same time, 223,000 jobs were added to the economy in April, and unemployment dropped to the lowest since May 2008 at 5.40 percent. These, among other factors, contributed to the consumer confidence index rising from 94.3 last month to 95.4 in May.

Fed Looks to Hike Interest Rates If Economy Continues to Improve

Janet Yellen, chairwoman of the Federal Reserve, said on Friday, “If the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy,” reports the New York Times.

According to the Times, the Fed aims to increase rates to keep inflation from rising above the Fed’s target. Some officials, however, claim that the economy still is not strong enough to raise rates.

A rise in interest rates means that banks will charge consumers more to borrow money. In other words, consumers will likely experience higher credit card and mortgage interest rates.

Home prices in several cities across the U.S. increased at a faster than expected rate in March. In April, single-family home sales also rose higher than projections for the month. The data about home prices indicates an improving housing market in addition to an overall improving economy.

Read: Warren Buffett Thinks the Fed Shouldn’t Raise Rates in 2015

Photo credit: Joseph Sohm / Shutterstock.com

This article originally appeared on GOBankingRates.com: How Does the DOW Triple-Digit Drop Affect Interest Rates?

This article by Misha Euceph first appeared on GoBankingRates.com and was distributed by the Personal Finance Syndication Network.