Key interest rate myth: the impact on real estate, securities and gold
.jpg)
The political, economic and ecological world events have been characterized by uncertainties for many years, which are currently worsening. For example due to wars, trouble spots, political power shifts and economic challenges. An institution that must take all these factors into account in its decisions is a country's central bank. It sets the key interest rate and thus has a powerful monetary policy tool in its hands. But how big is the influence of interest rate policy, which myths are persistently circulating, and what should investors be prepared for in the coming period?
Current interest rate policy USA vs. Europe
With the key interest rate, central banks worldwide have an important tool at their disposal: They change interest rates to control the rise in inflation. If the inflation rate is too high, for example, the central bank raises its key interest rate. This measure leads to less spending, curbs the economy and thus slows down the pace of inflation. On the other hand, if it lowers the key interest rate to stimulate the economy and stimulate spending, the central bank tends to promote economic growth. This works well, at least in theory, although political factors must always be taken into account. For example, the Ukraine war or Middle East conflicts.
In Germany, the key ECB interest rate is currently at a level that would have been unthinkable just a few years ago. After years of zero and negative interest rates in response to the 2008/2009 financial crisis, the ECB again adopted a more restrictive monetary policy in 2023 to counteract inflation. The central bank continued this course and reduced the deposit rate by 0.25 percentage points to 3.0% in December 2024. This was followed by a further reduction to 2.75% in February 2025. These measures are aimed at supporting the weakening economy in the euro area. Despite an unexpected rise in inflation to 2.5% in January 2025, the ECB remains confident that it will achieve its inflation target of 2% over the year.
The US Federal Reserve Fed is in a similar situation, but is currently pursuing a different strategy: It has raised interest rates in several steps in recent years, which has led to a slowdown in economic growth, but has also significantly reduced inflation. In December 2024, the Fed cut the key interest rate again by 0.25 percentage points to a range of 4.25% to 4.50%. This was the third interest rate cut in a row But in January 2025, the central bank changed its course: It left the key interest rate unchanged, although it could consider the possibility of up to two further cuts over the year if inflation continues to fall.
It is therefore a myth that a low key interest rate always means an economic upturn, while a high key interest rate necessarily stifles the economy. Rather, the effect of key interest rate adjustments depends heavily on the overall economic environment. For example, low interest rates often create bubbles, while higher interest rates can drive economic stabilization.
Is the stock market stuck on an interest rate drip?
Central banks' interest rate policy also has noticeable effects on the financial market. For example, high interest rates make borrowing more expensive for companies. In addition, some investors are rearranging their portfolio and favoring interest-linked forms of investment rather than securities. As a result, share prices may fall. In particular, stocks of so-called growth companies with a high level of external debt have suffered as a result of tighter monetary policy. At the same time, rising interest rates also offered opportunities for some industries: Banks and insurance companies, for example, often benefited from higher earnings.
A look at the past also shows that stocks do well when interest rates fall. But sometimes this only happens after a delay, during which there may well be price losses. For example, in response to the financial crisis, the European Central Bank has Key interest rate reduced in several steps from 4.25 to one percent in the period October 2008 to May 2009. The Dax nevertheless lost significantly in the first five months and only then rose to new record highs.
It is therefore a myth that changes in key interest rates always directly correlate with share price developments. For sustainable share price gains, stock exchanges need more than just falling interest rates — and above all stable economic growth. Investors should therefore pay attention not only to the key interest rate, but also to leading economic indicators such as Ifo business climate index straighten.
Construction interest rates are based on federal bonds
The interest rate policy of central banks is also relevant to the level of construction interest rates. However, the yield on ten-year federal bonds is particularly decisive for the development of construction loans. If this rises, interest rates on Pfandbriefe, which banks use to refinance their construction loans, generally also increase. As a result, construction interest rates are also rising, and vice versa.
Up to 2022, the mortgage market had had record years thanks to low and zero interest rates. With the ECB's interest rate turnaround at the beginning of 2022, the situation changed. Mortgage interest rates rose rapidly and peak at over four percent at the end of 2023. This was followed by several interest rate cuts, making financing more attractive again. Currently (as of February 2025), building interest rates - depending on the term and other individual parameters - are around three percent.
Historically speaking, however, the conditions for property buyers are good. Especially as little new construction is being built, rents continue to rise and real estate prices in sought-after metropolises such as Berlin, Hamburg, Frankfurt or munich are likely to increase in the coming years.
The monetary policy of central banks is therefore - as is often claimed - not solely responsible for developments on the real estate markets. However, they naturally have an influence on demand, which is correspondingly higher when construction interest rates are low.
Interest rates fall, gold glitters?
Unlike stocks or real estate, gold does not generate current income such as dividends, interest or rents. The gold yield is based solely on the development of gold prices, which may depend on the key interest rate. In theory, interest rate cuts should have a positive effect on the development of the gold price and rising interest rates should dampen gold demand - at least that is the widespread opinion. But that is a very narrow view that does not stand up to closer scrutiny. In recent years, for example, the price of gold has risen massively in parallel with rising interest rates and marked one record high after another. This is because gold has several functions and is often seen as a crisis currency and inflation protection, which comes into play especially in times of geopolitical uncertainties and ongoing recession fears.
Key interest rate developments therefore do not always have a direct influence on the price of gold. Especially in uncertain times, gold remains in demand as a “safe haven” and is certainly justified as a portfolio component for storing value and hedging risks.
In summary, the key interest rate can — but doesn't have to — be a key indicator for financial markets. For investors, this means remaining as flexible as possible, monitoring developments closely and diversifying their portfolio. Because while real estate and stocks, for example, can benefit from falling interest rates, they have an effect Real assets investments such as rare musical instruments or art often stabilizing, as they barely correlate with financial markets.
