The Economic Perspective: “The Fed, Interest Rates, and Stocks”

Mary:  This is Mary Walden with economist MW, welcoming you to the economic perspective.  Today’s program looks at the Fed, interest rates, and stocks.  Mike, despite the challenges of the pandemic, the stock market has remained strong.  In fact, many stock indices have recently set record highs.  But some worry this won’t last.  Do they have justification for their concern?

 

Mike:  Summary Answer

  • Stock market has been high for two reasons
  • See recovery continuing
  • But also, low interest rates
  • Low rates increase the value of stocks – no alternative, and value of future earnings is higher
  • So, as long as Fed keeps interest rates low, and the economy grows, stock market should be good
  • But if either falter, so too will stocks
  • I’m MW

 

Mary:  And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics