The theme this week on the Retirement Quick Tips Podcast is: Don’t Fight The Fed

Today, I’m talking about How Interest Rate Policy Impacts Stocks: Borrowing Costs

• “when interest rates fall, it costs corporations less to borrow. That reduces a major expense, especially for companies that are heavy borrowers” Zweig
• Lower expenses means higher profits for large publicly traded companies. Higher profits mean higher stock prices. 
• It was so cheap and easy for companies to borrow, that it made it a lot easier to grow, expand, hire, and pay their employees.
• The flipside, of course, is also true. When borrowing costs go up because interest rates are higher, that cuts into profits, and can lead to a quick bankruptcy for the most debt-saddled businesses. 
• Especially when you see rates go up sharply like we’ve seen…I think you’ll start to hear more about earnings drops, layoffs, and companies going belly up in the coming weeks and months. Too many businesses are financing their operations with debt, and with the prime rate now up to 6.25% and heading higher, its nearly twice as expensive to take on new debt as it was just a year ago when the prime rate was 3.25%

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.  

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Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance