Macroeconomics Guide
Intro & Definition
Welcome to our macroeconomics guide – which will be continuously updated as we progress through the year.
Macroeconomics is the study of the economy at a national scale, meaning it doesn’t focus on any single company.
Therefore, when we say “macroeconomics”, we are talking about larger-scale topics – such as inflation, interest rates, national employment numbers, money supply, etc.
Macroeconomic events have major ramifications on public companies today. High inflation could reduce customers: therefore chipping away at revenue. High interest rates could reduce a company’s expenditures: they may borrow less if their bond yields rise.
Furthermore – unlike company-specific (microeconomic) events – macroeconomic events can not only affect the companies your portfolio, but can also affect everything finance-related in your own life. For example, interest rates – which are determined by the US Federal Reserve – can affect savings, house mortgages, loans, etc.
Consequently, understanding macroeconomics is absolutely vital.
Interest Rates
We discussed Interest Rates Pt. 1 (below) at our meeting on 9/18/2026.
Interest Rates Pt. 1
What is an interest rate? Essentially, an interest rate is a percentage (%) fee one must pay when they borrow money.
For example, if George took out a $100K loan (i.e. borrowed $100K) from Citibank for one year, he might be expected to pay $112K back if the loan’s interest rate was 12%.
If interest rates are high, borrowing money is more expensive. If interest rates are low, borrowing is less expensive.
Because so much economic activity relies on borrowing, interest rates affect everything. The federal government borrows money by selling bonds; individuals borrow money by taking out loans; companies borrow money to finance their operations so they can grow. In other words, rate increase (hikes) or decreases (cuts) have widespread economic impacts.
It is important to note that there is no single, universal interest rate. Instead, there exists many types of interest rates, such as the Federal Funds rate, mortgage rates, loan rates, etc. However, these interest rates typically trend similarly in the long run: the reason as to why will be explored later.
Although numerous interest rates exist, the primary benchmark – and the one most commonly referred to – is the Federal Funds rate, set by the US Federal Reserve (the Fed).
The Fed meets regularly on a monthly basis to determine whether rate hikes or cuts are necessary as part of their dual-mandate: price stability and maximum employment.
Let’s take a look at how a rate hike can affect consumers in the short run:
| Individual seeking to buy a home | Individual with vast savings | Individual with a locked-in mortgage | Individual seeking loans | Individual with credit card debt |
|---|---|---|---|---|
| Marcus is saving to buy a home. He pays 10% up front and finances the other 90% with a mortgage. | Tim holds years of hard-earned savings. He has already paid off his mortgage and keeps his money in a savings account. | Leia bought her house with a fixed mortgage rate of 3% | Ana owns a bakery. She wants to take out a large loan for renovations. | Steve carries thousands in credit card debt. He pays the minimum payment each month, trying to chip away at the debt. |
| The Fed hikes rates and mortgage rates follow, causing Marcus’s mortgage rate to jump from 3% to 5%. | The Fed hikes rates and Tim’s savings account rate rises from 3.5% to 3.9%. | The Fed hikes rates and mortgage rates follow. But Leia has a fixed mortgage, so her rates remain unchanged. | The Fed hikes rates and the interest for a one-year loan jumps by 3%. | The Fed hikes rates and Steve’s credit card debt interest rate jumps from 20% to 30%. |
| HURT: Marcus must now pay more per month (nominally) to afford the house. | HELPED: Tim’s savings generate more passive income. | NO CHANGE: Leia is not affected since her mortgage rate remains the same. | HURT: Ana must pay more (nominally) to perform renovations. | HURT: Steve’s payments shift mostly towards paying the interest, making it more difficult to overcome the debt. |
While these situations seem to lean mostly towards the negative, one must consider that in the long run, there is likely to be a reduction in inflation – which is the ultimate goal of rate hikes. This will be further explained when we see how changes to interest rates directly affect inflation