On Friday, September 9th, 2016, Wall Street had its biggest selloff since June because employees of the Fed commented that interest rates may have to rise to cool off the economy. Eric Rosengren, president of the Federal Reserve Bank of Boston stated, "A failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery." He says that it is necessary to raise the interest rates if we want to ensure that unemployment remains low.
Anytime there is talk about any kind of rate increase is sure to have a negative effect on most people. In this case, the effect can be seen in the stock market. The Dow dropped 2.1 percent, nearly 400 points to 18,085. The S&P lost 2.5 percent, falling 53 points to 2128. The Nasdaq also plunged 2.5 percent, 133 points, to 5,126. Rising interest rates means the costs of borrowing goes up, which increases the cost of doing business. If the cost of doing business rises, companies may have to scale back on some operations and investors picked up on that. Investors' perception of Eric Rosengren was that he was cool to interest rate hikes, so when he advocated for interest rate hikes the market became spooked. Investors know this rate hike is coming, but are not sure if it will happen this fall or winter.
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It will be interesting to see if the Fed will really raise the rates as they have suggested in the past, but have not actually done. I'm alsointrigued to see what the stock market will do if they do actually raise the interest rate....or if they do not.
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