How Do Interest Rate Changes Affect the Futures Price Relative to the Spot Price?

Interest rate changes directly affect the cost of carry, which in turn impacts the futures price. An increase in interest rates raises the cost of borrowing funds to hold the underlying asset, thus increasing the cost of carry.

This generally pushes the futures price higher relative to the spot price, widening the contango. Conversely, a decrease in interest rates lowers the cost of carry and narrows the basis.