The market is celebrating the 25 base point hike from the Fed. The party may continue but the interest rate is getting higher and higher.
Why is the interest rate so important?
The ChatGPT explained:
Interest rate is important because it affects the cost of borrowing money, the return on investments, and the overall economy. A change in interest rate can influence consumer spending and investment decisions, inflation, exchange rates, and unemployment. Higher interest rates tend to slow down economic growth and reduce inflation, while lower interest rates can stimulate economic growth and increase inflation. Thus, interest rates play a critical role in determining economic stability and growth.
Here is my take on the interest rate.
It is important to the stock market because whoever can influence the market has borrowed tons of cash, and they owe a lot of money.
When interest rate goes up, they have to pay more interest payment to keep their cash flow or they cannot afford to borrow more money but slash their investment.
A similar effect happens in the crypto market.
Lower the interest rate means more profits for those big money guys.
That is why the market is moving up today.
How long can it sustain? We do not know.