Federal Reserve Controls Interest Rates 🪙

Learn how the Federal Reserve is in charge of keeping the US economy stable. One of the main ways it does this is by controlling interest rates. Read more to find out!

The Fed mainly charges something called the federal funds rate, which is interest rates banks charge each other.

When the Fed increases this rate, it becomes more expensive for banks to borrow money and leads to higher interest rates like loans credit cards, and mortgagers!

As you can tell, it really does affect everything! 🁒

The Fed can also buy r sell government bonds to either to put more money into the economy or take money out,

Like if:

• They want to slow inflation=raise interest rates

• They want economy to grow=lower interest rates

Why Stocks Fall When Interest Rates Rise?

When interest go up, stock prices go own for a few reasons

1. It becomes more expensive for companies to borrow money so they make less profit

2. People spend less money because loans and credit cards are more expensive, which hurts businesses and lower their earnings

3. Investors sometimes move their money to safer options like bonds instead of stocks so they can return it with less risk

4. The higher the interest rate is, the less worth of future profits will occur, high hurts fast growing companies

Now we will talk about

Which Sectors Benefit vs Struggle

Some parts of the stock market actually do better whe interest rates go up while others struggle.

Sectors that benefit:

• Banks and financial institutions

• Energy Companies

• Consumer Staples

Sectors that struggle:

• Technology companies

• Real Estate

• Utilities

joke of the week!

Quick Summary

The Federal Reserve raises interest rates to control inflation. When rates go up, borrowing gets more expensive, people spend less, ad companies make less money. This usually causes stock prices to fall. However, some sectors do benefit while others to tend to struggle.

Final Thoughts 💭

Next week we will be exploring whether the American Dream is still realistic for today’s generation, and how factors like rising costs, student debt, and job competition are reshaping what success really looks like!

Thanks for reading this week's blog!

Until then,

KAS