How Do Interest Rates Affect the Stock Market?

What Happens When Interest Rates Rise? When the Fed increases the federal funds rate, it does not directly affect the stock market itself. The only truly direct effect is that it becomes more expensive for banks to borrow money from the Fed. But, as noted above, increases in the federal funds rate have a ripple effect. The first ripple: Because it costs them more to borrow money, financial institutions often increase the rates that they charge their customers to borrow

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