Monetary policy choices can have a major impact on equity markets. At its core, monetary policy is all about the cost of borrowing. This is called an interest rate. When people talk about interest rates and the stock market, they are typically referring to the effective federal funds rate.
This is the interest rate used by the Fed whenever lending to institutional banks. How does this impact the stock market, though? Well, to answer that, will have to discuss how interest rates work in general.
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