Why the FED is rising interest rates and how it will impact the US economy

The Federal Reserve is the supreme governing body in the United States. Its function is to adjust and rebalance the economy amid geopolitical consequences and internal mismanagements. The Federal Reserve also is responsible for printing money by considering the demand and supply. 

History of increasing interest rates.

SEP 21, 2022             +75points 

July  27, 2022             +75points

June 16, 2022             +75points

May 5, 2022                + 50points

March 17, 2022           + 25points

Why fed increase interest rates

An increase in interest rates is the only significant way to tackle inflation as far as the FED 

Whenever interest rates increase, loan borrowers will reluctant to take money as they need to pay extra bucks. An increase in Interest rates can directly affect the ordinary citizen because unanimously banks will also follow the same. Normally banks borrow money from the FED by paying interest rates. This interest rate is known as the Repo rate. So, if FED hikes the interest rate, then it is unavoidable that commercial banks should also follow the same. 

So, here if the borrowers resist taking loans from the banks, then the market liquidity reduces significantly lower as the bond yields become higher. More and more people opt for depositing their money under bond yields. 

How it will affect the markets

 Increasing interest rates will definitely affect the stock markets for numerous reasons. One of the specific reasons is the “Unable to expand their business” Normally large corporations and institutions take loans from banks to expand their business operations and production. So, if the mortgage interest rates increase then corporates will also show no interest to take a loan with increased interest rates. 

This will impact their balance sheet will miserable because of remaining and undergrowth results. Companies cannot pay dividends to their shareholders without good profit growth.