Interest Rate

An interest rate is the cost of borrowing money, or the return earned on lending it, expressed as an annual percentage. It is the single input that touches nearly every corner of markets at once: bond prices, mortgage rates, corporate borrowing costs, and the present value of future stock earnings.

Higher rates make future cash flows worth less today (which pressures growth-stock valuations especially), raise the return available on cash and bonds (competing with stocks for investor dollars), and increase the cost of the debt many companies carry. Rate direction is one of the most closely watched variables in markets for exactly this reason.