Even if you didn’t take Economics 101 in college, just navigating through the past several years has given you hands-on experience with one of the course’s most valuable lessons: The rise and fall of interest rates is one of the biggest factors influencing globaleconomies, financial markets, and our daily lives. That’s why it is important to have a basic understanding of how interest rate changes could affect not only your wallet but also your investment portfolio.
Simply put, interest rates help control the flow of money in the economy. Typically the Federal Reserve lowers interest rates to jump-start the economy. Lower interest rates mean consumers may be willing to spend more money as the cost to finance a purchase is relatively inexpensive. This stimulates the economy in a variety of ways, including increased revenues from products sold to the consumers and taxes generated from those sales. Investors, on the other hand, have a different perspective.