Lowering the Federal Funds Rate Causes All Asset Classes Increase in Value

Lowering the interest rate has the effect of decreasing the risk for every asset class. This causes the expected return to go up and thus the value of the asset which leads to more buying of assets (for example getting a mortgage for fear of missing out) and greater optimism in the market (more risk taking). This is how the Fed tries to stimulate the economy.

However, this also makes it harder for lower risk investing (for example pension funds with a 5-7% target return), they will need.

Low rates make risk aversion harder to practice and risk taking more palatable.

See also:

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  • Tech Stocks Go Down When 10-Year Treasury Bond Yields Go Up

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  • The Stock Market Boom During the Pandemic Is Due to Increased Savings

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