Fed raises interest rate
- Thread starter Saint
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sculptor
Valued Senior Member
Usually, higher interests rates elevate the value of the currency-------so far, this time, this ain"t true.
Inflation is a tricky beasty which has a lot to do with psychology.
Old saw "do not fight the fed" usually translates to rising interest rates = lower stock prices.
Inflation is a tricky beasty which has a lot to do with psychology.
Old saw "do not fight the fed" usually translates to rising interest rates = lower stock prices.
1) It will push up the value of the dollar.
2) It will slow the economic growth rate. Therefore, overall it will lessen the stock appreciation rate. But there is no reason to expect stock prices will go lower. If the economy is as strong as the Federal Reserve believes it is, stock prices will continue to increase in value but at a lesser rate than otherwise would have been expected. And not all stocks are affected in the same way. Financial stocks generally benefit from increases in interest rates as they charge higher interest rates. Bonds and bond equivalent stocks (e.g. preferred stocks, REITS, etc.) are hurt by increases in interest rates. Their prices fall when interest rates rise.
3) Increasing interest rates slows inflation. It has the same effect as reducing the money supply. Whether inflation will be higher or lower in the future depends on many things. Rising interest rates doesn't mean you won't have higher inflation in the future. But rising interest rates will lessen inflationary pressures.
4) Higher interest rates will mean more foreign investment. That's why the value of the dollar increases when interest rates rise.
I don't know where you get that. We have had 2 interest rate increases within the last 6 months and the value of the dollar has increased as evidenced by the chart below:
No it has to do with supply and demand, i.e. too much currency chasing too few goods and services.
That's not true. It slows the economic growth rate. So it slows the appreciation growth rate. But it doesn't mean stock prices will be lower in the future for all stocks. As I mentioned previously, not all stocks are affected in the same way. If some stocks will benefit, e.g. banks, and some stocks will be hurt, e.g. bond equivalent stocks. Bond and other debt holders will be hurt by increases in interest rates. Bond and debt prices will fall when interest rates rise.