Central banks play a crucial role in shaping economic conditions worldwide. Their decisions on interest rates—especially in advanced economies such as the United States—not only influence borrowing costs and consumer spending but also have far‐reaching impacts on financial markets. In the U.S., the Federal Reserve’s (Fed’s) monetary policy is a primary driver behind movements in major stock indices, including the US30 (Dow Jones Industrial Average), S&P 500, and Nasdaq Composite. This article examines the mechanisms through which central bank rate changes affect these indices, provides historical context and empirical evidence, and discusses the nuances behind the different responses of these benchmarks. 1. The Role of Central Banks and Interest Rate Policy 1.1 Central Banks and Their Mandates Central banks, such as the U.S. Federal Reserve, are tasked with maintaining economic stability by targeting key objectives—most notably, low and stable inflation, full employment, and, in so...
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