U.S. stocks resumed their sell-off on Monday as government bond yields continued to trek upward, a hint that many traders are growing more certain that the Federal Reserve will move in the next few months to raise interest rates.
Traders say the pressure on U.S. stocks isn’t thanks to material concerns about the economy or fears of a massive Covid-19 resurgence, but portfolio repositioning for a world with higher borrowing costs.
“So I looked, and behold, a black horse, and he who sat on it had a pair of scales[a] in his hand” Rev 5:5
As the nation’s central bank, the Fed is tasked by Congress to maximize employment and keep prices stable. The Fed adjusts short-term interest rates and other liquidity tools to keep inflation around 2% and cut unemployment as much as possible.
When the Fed determines that the economy is close to full employment – and especially if inflation is hot – it hikes interest rates to make it tougher for firms to borrow and to keep a lid on spending that fuels price increases.
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