The Fed’s Interest Rate Policy and Changes in Tesla’s Share Price: Evidence from ARIMA Model

Abstract

On 26th July, 2023 the US Federal Reserve declared a new round of interest rate hikes, thus continuing its cycle of increase. To test its effect on the stock market, the paper predicts the stock price of Tesla since the starting of the interest rate hike cycle by means of the ARIMA model and compare it with the actual stock price. The paper finds that the stock price of Tesla experiences a rise in the extremely short run, a plump in the short term, and a rebounce in the long term. The paper also provides possible explanations behind the results. Suggestions are also given to the governments and investors to focus on the type of the stocks in terms of policymaking and investment respectively. For the investors, it should be aware that, even firms in growth will be greatly affected by the overall monetary policies, the interest rate hike in this case. Although in extremely short term, the stock may witness a continuous growth momentum, the trend will not always be the case. Investors should focus on those actual growth stocks to maintain their earnings in the stock market when there are some changes in the overall monetary policies.