When central banks like the Fed change interest rates, it has a ripple effect throughout the broader economy, stocks, bond and crypto markets in different ways.

How Interest Rates
Affect The Markets

The FED monitors inflation indicators to manage inflation. When indicators rise more than 3% a year the Fed raises the Federal Funds Rate to keep rising prices under control.

  1. Inflation

A higher interest rate means higher borrowing costs so consumers and businesses borrow less and spend less. Demand for goods & services drops and inflation falls.

  2. Economy

On the other hand, falling interest rates results when the Fed lowers the federal funds rates. Borrowing becomes cheaper and people spend more, this can end the recession.

  3. Recession

Interest rates affect consumer and business spending. When rates rise people spend less causing the companies' earnings to fall and stock prices to drop. When rates fall, people spend more and the stock prices raised.

  4. Stock Market

Bond prices and interest rates have an inverse relationship. As one increases the other decreases. Govt and Businesses raised money by selling bonds but as interest rates move up the cost of borrowing is more expensive.

  5. Bond Market

Fed rate hikes will impact all markets. If the Fed raises interest rates, money circulation decreases, and demand follows that. If people have less money to spend, they save first rather than invest. 

  6. Crypto Market

When Fed decides to hike interest rates it also affects the mortgage loan cost. Rising rates make homes more expensive for buyers, thereby reducing the demand for home purchases.

  7. Mortgage Rates

Interest rates rise too quickly, reducing the demand for goods and services. This causes the businesses to cut back on production, meaning they need fewer workers, so workers are laid off, increasing unemployment.

  8. Unemployment

The financial industry tends to benefit the most. Banks, brokerages, mortgage companies, and insurance companies' earnings often increase - as interest rates move higher - because they can charge more.

  9. Financial Industry


   US Treasury Yield

   US Inflation Rate

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