5 Reasons why Interest Rate hikes causes markets to fall - FOMC

14 Des 2022

We had the CPI come our better than expected (7.1%) versus 7.3% expected.

This means finally inflation is decelerating at an accelerating rate which is good for the markets.

However, today with the FOMC they are expecting a 50 bps hike or 0.5% rise.

Just a reminder in simple terms

Interest rates is the amount of money (expressed as a %) that a lender charges a borrower for the use of their money.

The interest rate is the percentage of the money you borrowed that you have to pay back as a fee.

Now there are a few reasons why interest rate hikes can cause global markets to fall including.

1. Better places to invest in
Investors take their money out of stocks and financial assets and into banks where the potential return is higher.

2. Strong economy
When interest rates rise it tells is the economy is improving and getting stronger. This can lead to higher inflation expectations.

3. Expensive for businesses
When interest rates rise, it makes the borrowing more expensive for businesses. This is based on the borrowing of buildings, assets and equipment. They now need to pay a higher rate to finance their debt.

4. Better for bonds and fixed investments
Again, investors want a better ROI. They will take money out of the financial markets and more into bonds and other fixed-income investments.

5. Higher US Dollar
Higher Interest rates often lead to a stronger dollar. U.S Exports become less competitive which hurts many multi-national companies. and less attractive for U.S stocks.

Hope that helps. Save this so you have an idea on how Interest Rates move the markets. Follow for more daily tips. Thanks for the support.

Trade well, live free.

Timon
MATI Trader