I understand why increasing interest rates can negatively affect the economy, but why would the Feds raise the rate because of the positive jobs report?
I always assumed that more people employed means more discretionary spending leading to more corporate profits.
In: 7
Broadly, you can measure how well the “Economy is doing” in part, by looking at jobs: the employment rate is down and lots of people is working, that’s a sign that the economy is doing well.
But, the fed isn’t only concerned with the economy — right now, the fed’s goal is to reduce inflation, which it does by raising interest rates. And, when the economy stats to perform “too well,” inflation starts to increase — when people have more money to spend, the prices of goods and services tend to go up.
So, the feds will try to combat that by raising interest rates. When interest rates go up, businesses and people respond by buying less things on credit, and that tends to reduce demand for goods and services, which tends to push prices down.
So, what you’re seeing is this:
(a) positive jobs report
(b) people saying “Oh no, the fed is going to increase interest rates. That means the companies I invest in won’t make as much money. And, that means those companies are worth less.”
(c) as a result, the stock market goes down
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