Stock prices tend to ________ when the Federal Reserve raises interest rates because higher interest rates ________ dividends.

Question

Quizplus · Accepted Answer

When the Federal Reserve raises interest rates, which is a contractionary policy, it slows down economic activity, thereby reducing the expected sales and profits of companies whose shares are traded in the stock market. Lower profits, in turn, reduce the dividends those firms are likely to pay their shareholders.

Stock Prices Tend to ________ When the Federal Reserve Raises