How does the interest rate affect the markets?How does the interest rate affect the markets?
We often hear in the news that the market is rising or falling after decisions or some statements by the Fed. We also often talk about the dollar index, so let's use simple words and with a cheat sheet at the end of the video, I'll show you how it works SP:SPX BITSTAMP:BTCUSD
What is the FED
The Federal Reserve is a network of financial institutions that together make up the central bank of the United States of America.
Why is the Fed cutting rates?
When the economy is not doing well, the FOMC can make interest rates lower, encouraging people to take out loans and stimulate economic activity.
What happens when interest rates rise
Central banks raise rates when there is a high risk of recession and stagflation (high inflation, very low GDP growth)
The higher the rate, the more expensive money is for banks and, as a result, loans become more expensive for the entire economy.
A rate cut means a reduction in the cost of loans.
Bitcoin, due to its large capitalization, has become highly correlated with traditional markets
A change in the rate affects the entire money markets. An increase in discount rates leads to a decrease in the cost of bonds and an increase in yields across the entire class of fixed income instruments. Bank deposit rates go up, and bond yields go up for investors. And vice versa.
Use this cheat list like visualisation of potential market upcoming moves
