The Nasdaq tumbled after Yellen’s comments – why are people afraid of interest rates?

           As vaccinations take place in the United States, it is expected to return to daily life soon. But at the same time, there are growing concerns that inflation could occur.

           The word “Inflation” refers to a rapid rise in prices. In the event of inflation, prices of various foods and daily necessities, including rice and flour, can rise rapidly, causing major problems. If prices continue to rise, one solution could be to absorb market liquidity through raising interest rates. In fact, raw materials such as wood, iron, and copper, which are the first to respond to inflation, are already rising at a rapid pace. There are growing voices of complaints in the U.S. to raise the interest rate.

           However, there are concerns that if market liquidity is reduced through raising interest rate, stock prices could tumble because there will be less funds flowing into the stock market. Therefore, many stock investors are always paying attention to the interest rate issue.

           Under these circumstances, U.S. Treasury Secretary Yellen expressed her opinion on raising interest rates on May 4 (Local time). “It may be that interest rates will have to rise something to make that economy doesn’t overheat,” she said. On May 4, when Yellen spoke, the U.S. stock market reacted sensitively. The Nasdaq index fell 2 percent, while major tech enterprises such as Apple (AAPL), Tesla (TSLA) and Amazon (AMZN) all fell.

           As the market reacted sensitively to her remark, Treasury Secretary Janet Yellen explained her remarks at The Wall Street Journal’s CEO Council Summit. “I don’t think there’s going to be an inflatable problem,” she said. “But if there is, the FED can be counted on to address it”. In addition, she stressed the independence of the FED, saying that the FED would always take action in the event of inflation.

            Concerns over an interest rates have ended as an issue, but the incident shows how much the market is concerned about inflation. We should always be careful when investing and develop a habit of understanding market trends. It will also have to be carefully selected to prepare for a plunge at all times.

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