ElI5- Why will raising interest rates by the feds cause markets and commodities to crash?

Question

Shouldn’t it work in the reverse? If businesses are getting loans at higher interest rates shouldn’t they be doubling down on investments as a safety net?

In: 3

Answer 1

Relative rates of return.

If interest rates go up to say 4% – people can safely make a return on their cash ahead of inflation.

While they’re close to zero – if you want a return you need to buy equities/bonds which will likely give a higher return.

So raising interest rates, in theory reduces the amount invested in the economy as people save more.