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Anonymous
Anonymous asked in Business & FinanceInvesting · 1 month ago

why , when the Federal Reserve Bank cuts interest rates like a 1/2 a point..does this make the stock market go up?  that is really true?

or is it like a game and that is what it is just "supposed to do" ? why?

Update:

i mean, how does that encourage investors to invest on the stock market?  1/2 a percent point for interest rates on loans? that is really a lot ?

2 Answers

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  • 1 month ago
    Favorite Answer

    think of it this way -- in the short run, there is a fixed pool of investment capital.  cutting interest rates involves the FRB buying government bonds in the open market, thus injecting more investment capital at the same time that bonds are less attractive [lower interest rate].  money from both the addition and rotation out of bonds flows into stocks -- thus driving the prices UP.

  • Steve
    Lv 5
    1 month ago

    Over a 10, 20, 30 year span? Yes, it really is a lot. 

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