The Impact of Federal Reserve Interest Rate Changes on U.S. Stock Market Performance

Samuel Attia

Co-Presenters: Individual Presentation

College: College of Business and Public Management

Major: BS.FINANCE

Faculty Research Mentor: Yu, Huaibing  

Abstract:

This research project explores how changes in Federal Reserve interest rates have influenced the U.S. stock market between 2020 and 2025. During the COVID-19 pandemic, the Federal Reserve lowered interest rates to near zero to support economic recovery. However, as inflation increased in 2022, the Fed responded with a series of aggressive rate hikes. These major policy shifts created noticeable volatility in financial markets and raised important questions about how monetary policy affects stock prices.The main goal of this study is to examine the relationship between movements in the Federal Funds Rate and the performance of the S&P 500 Index. Monthly data on interest rates and stock market returns were collected from the Federal Reserve Economic Data database and Yahoo Finance. By comparing trends and analyzing correlations between rate changes and market performance, this research evaluates how investors reacted to different monetary policy environments.The findings indicate that rising interest rates are generally associated with market uncertainty and pressure on stock valuations, while lower interest rate periods tend to support stronger equity performance. Understanding this relationship is important for investors, financial analysts, and policymakers, especially during periods of economic instability. Overall, this study highlights the significant role that Federal Reserve decisions play in shaping financial market outcomes.