After Thomas M. Hoenig, president of the Federal Reserve’s Kansas City bank stated his personal belief that the interest rate should be raised in order to ward off inflation, stocks fell sharply on Wednesday. Although the Fed has released minutes that say they have no intention of raising the interest rate anytime soon, investors are still wary. This article demonstrates how raising interest rates, or even the expectation of raising interest rates can lower investment.
I think the news of the fall in consumer borrowing had a bigger impact on the market dip than the opinion of Hoenig. Interest rates have a more noticeable affect on bonds than the overall market, and these bonds factor in the expected interest rates 6 months into the future. The market dip was probably from the losses reported by GM and the consumer borrowing.
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