How do interest rates affect stocks, bonds and crypto?

What interest rate are we talking about?

When headlines say "rates went up", they usually mean a central bank's policy rate. In the US that is the target range for the federal funds rate, set by the Federal Open Market Committee (FOMC). On 16 September 2026 the FOMC raised that range by a quarter of a percentage point to 3.75%–4%. The European Central Bank sets its own key rates for the euro area.

The policy rate is only the starting point. The Federal Reserve explains that changes in the federal funds rate influence other interest rates — on mortgages, car loans, corporate borrowing and savings accounts — and through them how much households and businesses spend. Central banks move rates mainly to keep inflation near target; both the Fed and the ECB aim for 2%, as explained in what is inflation.

How does a rate decision reach markets?

The ECB describes several channels through which policy spreads. Bank lending and deposit rates adjust. Expectations about future policy shift longer-term interest rates. Asset prices such as shares and exchange rates move, which changes household wealth and the cost of imports. Banks may also tighten or loosen lending standards.

Two caveats from the central banks themselves matter. First, the effects arrive with what the ECB calls long, variable and uncertain lags. Second, the Fed stresses that the links from policy to inflation and jobs are not direct or immediate, because many other forces are at work at the same time.

Why do bond prices fall when rates rise?

A bond pays a fixed stream of interest. If new bonds start paying more, an older bond with a lower coupon is less attractive, so its market price has to fall until its yield matches what buyers can get elsewhere. Investor.gov puts it plainly: to sell an older, lower-rate bond you may have to accept a discount. If you hold the bond to maturity and the issuer pays, you still receive the face value and all the interest — the loss only becomes real if you sell early.

How far the price falls depends on duration, a measure of rate sensitivity. FINRA's rule of thumb: for each one-percentage-point change in rates, a bond's price moves roughly its duration in percent, in the opposite direction. Longer maturities mean higher duration; higher coupons mean lower duration.

How do interest rates affect stock prices?

The link is real but noisier than for bonds. Higher rates raise companies' borrowing costs, and they make safer alternatives such as savings accounts and government bonds pay more, so investors may demand a higher expected return before owning shares. The ECB lists equity prices among the channels through which policy works.

A widely cited estimate comes from a study by Ben Bernanke and Kenneth Kuttner, published in 2005. They found that unanticipated cuts in the federal funds target were associated with rises in broad US stock indexes, Two points in that finding matter for beginners:

• The study measured surprises. A rate move everyone expected is, by definition, not a surprise, and may barely register on the day.
• Most of the effect came through risk appetite — changes in the extra return investors demand for holding stocks — rather than through companies' expected profits.

Many other things move share prices at the same time, including earnings, the economic outlook and global events, so a rate decision rarely explains a whole day's market move on its own.

Do interest rates move crypto prices?

Crypto-assets pay no coupon and have no earnings, so the bond and stock reasoning does not carry over neatly. What the evidence shows is correlation. IMF researchers found that daily returns on bitcoin and the S&P 500 had a correlation of just 0.01 in 2017–19, rising to 0.36 in 2020–21 — meaning the two increasingly moved in the same direction. They also estimated that bitcoin's volatility explained about a sixth of S&P 500 volatility during the pandemic.

A plausible reading is that crypto has traded more like other risky assets, so whatever shifts appetite for risk — rate changes included — can show up in crypto prices. But correlation is not proof of cause, the relationship has changed over time, and economists do not agree on how much rates themselves drive crypto. For the basics of what you are holding, see what is cryptocurrency; for why yields advertised on stablecoins differ from bank interest, see what is a stablecoin.

What mistakes do investors make around rate decisions?

• Trading the announcement. Markets react to the gap between what was expected and what happened, not to the headline itself. A widely expected hike can be followed by rising prices.
• Ignoring duration. A long-term bond fund can lose far more than a short-term one when rates rise. Check the fund's stated duration.
• Assuming the link is fixed. The correlation between crypto and stocks was close to zero before 2020. Relationships that held in one period can fade.
• Forgetting the lag. Central banks themselves say the economy responds over long and uncertain periods.
• Comparing nominal yields without inflation. A 4% savings rate with inflation above 4% still loses purchasing power. Our compound interest calculator helps you see the difference over time.