Interest Rates

What are Interest Rates?

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current interest rates: 10k-100k

rising interest rates: 1k-10k

how to invest in high interest rate environment: 10-100

how to invest for rising interest rates: 10-100

how do rising interest rates affect bonds: 10-100

how do reits perform when interest rates rise: 10-100

how rising interest rates affect stocks: 10-100

how to make money when interest rates rise: 10-100

How Interest Rates Affect the Price of Commodities

An increase in the interest rate reduces firms’ demand for holding inventories and therefore lowers the commodity price.

How Interest Rates Affect Real Estate

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Home Prices

The Federal Reserve's decision to increase the federal funds rate can cause mortgage rates to rise. If mortgage rates rise, home buying demand may decrease, causing home prices to fall.

Commercial Real Estate

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Farm Land

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How Interest Rates Affect Stocks

Interest rates mean a higher cost of borrowing money for companies. Higher costs of borrowing means more expenses and less cash flow. This can be especially problematic if the company has a lot of debt.

The Federal Reserve can raise interest rates to increase the cost of borrowing money and slow down economic activity. For example, if the Fed raises interest rates, it makes it more expensive for businesses to borrow money for expansion projects. In this case, stock prices fall because companies are less likely to use their profits to increase their business size.

When interest rates fall, it becomes cheaper to borrow money, which makes it easier for companies to expand their businesses. For example, if the Fed lowers interest rates, it will be easier for companies to borrow money for expansion projects because they'll be able to get lower interest rates on their loans than before. In this case, stock prices rise because investors expect companies will use their profits to expand their businesses by buying new equipment or hiring additional employees.

Financial Stocks, The Exception

One sector that tends to benefit the most from interest rate hikes is the financial industry. Banks, brokerages, mortgage companies, and insurance companies' earnings often increase when rates move higher because they can charge more for lending.

How Interest Rates Affect Bonds

Interest rates are a key factor that determine the value of bonds. Interest rates affect bond prices in two ways:

There is an inverse relationship between bond prices and interest rates: as interest rates rise, bond prices fall (and vice versa). The longer the maturity of the bond, the more it fluctuates in accordance to changes in the interest rate.

A bond's coupon rate is fixed at issuance. As interest rates change, the price of a bond will also change because its coupon rate does not change. If a bond has a coupon rate of 8% and interest rates are at 5%, then its value will be greater than if interest rates were at 10%.

How Interest Rates Affect Savings

When interest rates decline, savings account rates also drop. When interest rates rise, savings account rates are bid up. So when the Federal Reserve lowers its target rate, banks lower their deposit rates accordingly because they don't want to lose deposits and loans to competitors who offer better yields. And when the Fed raises rates, banks increase their deposit rates as well because they want new deposits and loans at higher yields than they could get before the rate hike occurred.