How did higher interest rates affect construction and automobile purchases before the Great Depression?

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A long line of unemployed men in coats and hats stands outside a soup kitchen in Chicago, with a storefront sign reading Free Soup, Coffee and Doughnuts for the Unemployed. — Great Depression Unemployed men standing in line outside a soup kitchen, Chicago.

In 1928 and 1929, the Federal Reserve raised interest rates in an effort to curb rapid speculation in the stock market. These higher rates had a direct negative impact on interest-sensitive spending, specifically in the areas of construction and automobile purchases.1

By increasing the cost of borrowing, these policies depressed demand for these major purchases, which subsequently led to a reduction in production. Additionally, some scholars note that a mid-1920s housing boom had already created an excess supply of housing, which contributed to a particularly sharp decline in construction activity during 1928 and 1929.1