Why Do Stock Markets Decline When US Federal Reserve Rates Increase?

Most people pay attention to interest rates, and these surely impact the stock market. You may be asking why so here are some explanation that will help you learn some reasons why interest rates and the stock market are linked.

Interest is the the cost that a person pays for the use of another person’s money. If you borrowed money to buy a house, you should understand this clearly. You may have to borrow money from the bank via a mortgage in order for you to buy your dream home and pay back the bank.

The same thing goes if you are a credit card user. You borrow money now so you can buy something that you really want or need right away.

Federal Reserve Bank of New York Building

However, when we are talking about the stock market and the effects of interest rates, there are more to our examples above.

Take a sit, sip a cup of coffee and listen to this video lecture from Sasha Edvakov of TradeFly.com

Did you learn something from the lecture? Nosebleed?

Don’t worry, we will find a much simpler video explanation about this topic soon.

But remember that interest rates are not the only factors affecting stock prices. An increased interest rate is only one of them. You can never conclude that a Fed rate hike will always have an overall negative effect on stock prices.

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Photo credit: Michael Daddino

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