Most people are unaware of the fact that interest rates can affect the stock market. Essentially, interest is nothing more than the amounts you pay for using someone’s money. This idea goes well in the case of small families but the business people should not opt for this idea.
Usually, friends or family members use someone’s chequebook, credit card, or ATM card to buy a house, for shopping, or perform another similar task. In this situation, they are borrowing money for a couple of days, weeks, or months. But when it comes to the stock markets, the interest rates change, and new business people should never go with this option. The interest rates that apply to an investor are the Federal Reserve’s funds rates. This is what the banks are charged to borrow money from Federal Reserve banks. The aim of the Federal Reserve is to control inflation. Inflation is referred to as spending huge money to buy a few things. Sometimes the Federal Reserve increases the interest rate to reduce the number of businessmen who borrow things. It also intends to lower the supply of money by making it an expensive option to go with.
The interest rate changes leave great impact on the stock market. Federal funds become a costly option for banks for borrowing money. Thus, they stop doing so, and this eventually leaves great impact on both individuals and businesses.
The first effect of increased interest rates is that the banks charge even more to their customers for borrowing money. Individuals are affected because of this as their credit card and mortgage interest values tremendously increase.
In one way or the other, this affects the businesses. The businessmen have to borrow money and the terms are not suitable which leaves them suffering big time.
The behaviour of consumers certainly changes with the fluctuating interest rates. This eventually can lead to cutting the growth of a firm back and it might start making lesser than expected profit.
Keeping the above things in mind, it is needed that the federal government and the banks should keep the interest rates at the nominal level. Otherwise, it will lead individuals and companies to suffer from profit losses.
Tammy Richards is a seasoned finance writer with over 15 years of experience in the industry. With a keen eye for detail and a passion for helping people make smart money decisions, Tammy has become a trusted voice in the world of personal finance. Holding an MBA and drawing from her extensive entrepreneurial background, she offers valuable insights and practical advice to her readers.
Trading Hours
