The Biggest Bubble In History (Shocking FED Update)
This chart, depicting the federal funds rate, is crucial for predicting the future of nearly every market, from automobiles to stocks. The federal funds rate is the benchmark rate set by the U.S. government, which influences various rates including business loans, certificates of deposit (CDs), treasury bonds, mortgages, and car loans. Understanding where this rate is headed and its changes will allow you to essentially predict where the markets are going.
The basic idea here is that when interest rates rise, they act like a force pulling down on stock prices. The reasons are straightforward. First, the cost of borrowing increases. Companies often rely on loans to expand—they build new facilities, hire additional staff, and invest in research. If expansion slows down, profits usually do too. Additionally, higher interest rates impact consumers. With more expensive loans and credit, people tend to spend less. Furthermore, higher rates offer other attractive investment opportunities. For example, you could now get a 5% return on a Certificate of Deposit (CD), which is guaranteed. For many, this is a safer option than risking their money in the volatile equity markets. All these factors combine to make this statistic incredibly significant. It's like gravity on the market—the stronger the pull, the harder it is for the economy to soar.
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Chart from Yardeni
https://yardeni.com/charts/cpi/
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