New haircut?... Markets look a little different recently. The tech-stock heavy Nasdaq index is down nearly 5% for the week: strange, since Big Tech has been on a tear over the past year. Also: interest rates are rising from historic pandemic lows. The 10-year Treasury yield (basically: the interest rate the US government pays to borrow money) has risen to its highest level since February 2020. The average interest on a 30-year-fixed-rate mortgage also rose.
What's going on?... Falling tech stocks and rising interest rates are likely related to one thing: inflation fears. Investors are scared that the purchasing power of the dollar will decrease and prices will rise — or, that a $4 coffee today could cost $6 in a year. To help the economy, the Fed has added trillions to the money supply through stimulus packages and bond-buying sprees. And we could get another $1.9T stimulus package soon. That increases cash in circulation, which could boost inflation risk.
Inflation is the Godzilla of finance... But we might not have to fear it just yet. Yesterday morning, Jerome Powell said the Fed is committed to its current policy of keeping interest rates low. He’s not immediately concerned about inflation levels, which have stayed relatively low for a decade — he is concerned about getting the economy back on its feet. JP's announcement helped calm inflation worries, so tech shares mostly rebounded for the day.