Practical tips! The first indicator of U.S. stock market macro analysis — the Federal Funds Rate
Put simply, it’s the interest rate at which U.S. banks lend to each other for overnight borrowing of idle funds.
All U.S. banks have to hold reserve funds with the Federal Reserve. Some banks have excess money, while others don’t have enough to cover day-to-day operations. The interest rate for lending surplus funds is the Federal Funds Rate.
It doesn’t directly give loans to ordinary people, but it’s the master control switch for global dollar liquidity. It governs everything from mortgage rates, corporate loans, U.S. Treasuries, U.S. stocks, and the dollar exchange rate—basically the rise and fall of nearly all overseas assets.
When the Federal Reserve hikes or cuts rates, it’s adjusting this benchmark rate to control the global supply of money—how tight or loose it is—and thus the temperature of the economy.
Rate hike = tightening: money gets more expensive, U.S. Treasuries fall, the dollar strengthens, inflation is suppressed, and the stock market faces pressure.
Rate cut = easing: money gets cheaper, U.S. Treasuries rise, the dollar weakens, the economy gets support, and stocks benefit.
That’s also why, when CPI fell a few days ago, the market’s expectations for future rate hikes dropped, and U.S. stocks strengthened that same night.
Put simply, it’s the interest rate at which U.S. banks lend to each other for overnight borrowing of idle funds.
All U.S. banks have to hold reserve funds with the Federal Reserve. Some banks have excess money, while others don’t have enough to cover day-to-day operations. The interest rate for lending surplus funds is the Federal Funds Rate.
It doesn’t directly give loans to ordinary people, but it’s the master control switch for global dollar liquidity. It governs everything from mortgage rates, corporate loans, U.S. Treasuries, U.S. stocks, and the dollar exchange rate—basically the rise and fall of nearly all overseas assets.
When the Federal Reserve hikes or cuts rates, it’s adjusting this benchmark rate to control the global supply of money—how tight or loose it is—and thus the temperature of the economy.
Rate hike = tightening: money gets more expensive, U.S. Treasuries fall, the dollar strengthens, inflation is suppressed, and the stock market faces pressure.
Rate cut = easing: money gets cheaper, U.S. Treasuries rise, the dollar weakens, the economy gets support, and stocks benefit.
That’s also why, when CPI fell a few days ago, the market’s expectations for future rate hikes dropped, and U.S. stocks strengthened that same night.
