Federal Reserve Chairman, Alan Greenspan indicated the escalation of interest rates in April 2004, considering the contemporary economic data, which is good for the economy but bad for the bond market. Inflation and resurgence in US employment are considered as the two key players that prompted the Fed to increase interest rates from the current four-decade low. Against this backdrop, investors are maintaining restraint on the eve of interest rate increase. Interest is the price individuals pay to meet their urgent needs and to cover resources at present rather than later. Their needs can range from paying for college tuition to buying a television set.

Interest is traditionally articulated as a percentage for a period of one year. If borrowers those who need resources in the current period, can acquire such resources from lenders those who are prepared to surrender existing control, on the condition that they return 106% of the resources one year later, then the interest rate is 6%. The interest rate enters at least unconditionally into all economic decisions, because economic decisions are made by evaluating expected future remunerations to costs. The only way to make the value of future remunerations or costs analogous to one another is to discount them by their sequential detachment from the present using the pertinent interest rate. The greater this temporal distance, i.e., the further into the future the benefit or cost is, the lesser is the discounted or present value.

Interest rate is determined by demand and supply: the demand for present control of resources by those who do not have it, and the supply from those who do have control and are willing to surrender it for a price. The issue of why demand and supply agree to a positive rate of interest is one of the most debated questions in the history of economic theory. It is enough to point out that when an individual attains current command of resources, his or her set of existing prospects expands. In short, the present dominion of resources is something that people desire. Therefore, those who get it are eager to pay for it, and those who give it up are resolute that they are being rewarded for doing so.