The relationship between interest rates and economic sentiment. In general, interest rates change as the economy fluctuates and fall during a recession.
During economic booms, companies are often actively engaged in new business or capital investment, so the demand for capital increases.
In times of economic downturn, companies will reduce activities such as capital investment, and the demand for capital will decrease accordingly.
If interest rates rise, companies may reduce investment, leading to a pullback in the economic boom. Conversely, if interest rates fall, businesses may start investing aggressively again, contributing to an upturn in the economy.
Therefore, interest rates fluctuate with fluctuations in the economy, which regulates the flow of funds and affects changes in the economy.
When interest rates are low, it is easier for companies to obtain loans, so they can actively invest in equipment and expand production, which is known as a boom period. As a result, companies may increase employee salaries and bonuses, and personal incomes will increase, which in turn will stimulate consumption and gradually improve economic conditions. As consumption increases, companies may be more aggressive in increasing production and expanding their operations, so the need for capital will increase accordingly.
• An increase in demand will naturally lead to an increase in prices, which in turn will also lead to an increase in the price of funds, that is, an increase in interest rates. Rising interest rates can lead to higher procurement costs and make lending difficult. As a result, companies may enter a downturn phase by reducing capital investment and scaling their business.
Businesses may reduce employees' wages and layoffs, and personal income may also decrease, so personal consumption may also decrease. Businesses may also have less need for money, which could eventually lead to lower interest rates.
Therefore, fluctuations in interest rates lead to booms and downturns, and create a cyclical economic cycle.
