LogFAQs > #968621013

And how it affects stocks is - would you rather invest in ABC bonds or stock? The market will price these things at a value such that the market as a whole is indifferent between them. So if the yield in the bond then doubles, the bond appears to be offering a much better value than the stock now. Unless the stock also craters in price - then it can also now offer a better value.

So the Fed raising interest rates has a very real and crushing effect on prices the world over. That is what they are trying to do to beat inflation. That is what they did do, in the other direction, with the massive quantitative easing and zero rates in 2020 and 2021. But I think the experience there is that Fed policies hit the prices of investments long before they hit consumer prices.

I also think the market overreacts to the interest rates in the sense that some people are treating the higher interest rates as permanent. The zero interest rates didn't last forever and in all likelihood, neither will the 4-5% interest rates we appear to be headed towards.