As the all-knowing, all-powerful central bank of the United States, the FED has the power to raise and lower interest rates at will. And when it comes to the stock market or crypto market, let’s just say that the FED’s decisions can make or break a good day for investors and traders.
But why does the FED have such control over the stock market, you ask? Well, it’s simple: money. When the FED raises interest rates, it becomes more expensive for people and businesses to borrow money, which can slow down economic growth and inflation. And as any trading guru will tell you, a sluggish economy is bad news for stocks and cryptocurrency.
But let’s not get too bogged down in the details. The real question on everyone’s mind is: how does the FED’s interest rate shenanigans affect my stock portfolio?
Well, to put it simply, a FED rate hike can cause stocks and cryptos to go down. That’s right, all those hours you spent analyzing company financials or following the TA of a certain crypto, picking out the hottest altcoins can be ruined by a single announcement from the FED. It’s like a game of financial roulette – will the FED shoot your portfolio in the foot, or will it give it a boost?
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Of course, not all stocks are affected equally by FED rate hikes. Some industries, such as utilities and real estate, tend to do well when interest rates are rising because they offer steady dividends that become more attractive to investors. But on the flip side, industries that are sensitive to changes in interest rates, such as financials and consumer discretionary, can suffer.
But wait, it gets even better. Not only can FED rate hikes hurt the stock market, they can also impact the value of the U.S. dollar in the foreign exchange market. Because higher interest rates make a country’s currency more attractive to investors, a FED rate hike can cause the value of the U.S. dollar to rise relative to other currencies. This can make it more expensive for foreign investors to buy U.S. stocks, which can further contribute to a decline in the stock market.
So, in short, the FED’s interest rate decisions have the power to make or break the stock market. But don’t worry, there’s always next quarter for the FED to change its mind and potentially save your portfolio. Just remember: when it comes to the stock market, the FED holds all the cards. Happy investing!