What does it mean for the Fed to raise interest rates and cut interest rates?
Fed raises interest rates:
This means raising interest rates on deposits and loans, so that funds will flow back to banks. Under normal circumstances, the interest rate hike is implemented because of the depreciation of the US dollar and the oversupply of the US dollar. Therefore, after raising interest rates, the currencies of other countries will depreciate accordingly, leading to capital outflows. For our country, after the US raises interest rates, it will be beneficial to China's exports and unfavorable to imports. The cost of some enterprises that rely on imports will increase, which will also have a certain negative impact on our country's economy or stock market.
Fed cuts interest rates:
After the interest rate cut, the deposit and loan interest rates will be reduced. At this time, people will withdraw funds from banks and then flow to the real economy or the stock market. At this time, the currencies of other countries will appreciate. Under normal circumstances, the Fed will cut interest rates because the domestic economy is sluggish, so it will relax its liquidity. When the dollar depreciates, the prices of some commodities or precious metals will rise. For our country, the interest rate cut by the Federal Reserve is beneficial to our country's imports, not exports, and some enterprises that rely on imported raw materials will benefit.
The influence of interest rate increase and interest rate decrease by the Federal Reserve on the stock market;
Fed raises interest rates:
1. For the American stock market, raising interest rates will increase the deposit and loan interest rates of banks, and investors will choose to deposit their money in banks, so the capital flowing into the stock market will be greatly reduced.
2. For the China stock market, the decrease of capital inflow and stock price of US stocks will inevitably affect the global stock market.
Fed cuts interest rates:
The Fed's interest rate cut is obviously good news for the global stock market, especially the US stock market. The interest rate cut by the Federal Reserve can greatly improve the liquidity of the dollar. A large amount of dollars came out of the bank and invested in other products with higher returns. The stock market has become the first choice for most funds, thus promoting the stock market to rise.
As the currency of the United States, the dollar index is an indicator to measure the strength of the dollar. Whether the Fed raises interest rates or cuts interest rates will have a close impact on the US dollar and the US dollar index. Simply put, the Fed's interest rate hike will push up the US dollar index. On the contrary, the Fed's interest rate cut will be bad for the US dollar index, which will lead to the decline of the US dollar index. It should be emphasized that the short-term actions of the Fed to raise interest rates and cut interest rates only have a short-term impact on the US dollar index, while the long-term general direction of the Fed's monetary policy has a leading impact on the rise and fall of the US dollar index.