Advertisement <\/span> <\/p>\n<\/aside>\nIn late 2021, with inflation raging, the Federal Reserve signaled that it would begin tightening monetary policy. The Fed made good on its pledge in March by raising interest rates. Last week, the Fed increased its target interest rate by 0.5 percent, the most significant one-day hike in two decades.<\/p>\n
Rising interest rates tend to push down the market value of all assets. The tightening financial conditions have driven a broad-based decline in the stock market, with the S&P 500 declining by 18 percent since its December peak.<\/p>\n
High interest rates have a particularly big impact on speculative assets. The tech-heavy NASDAQ index is down 29 percent since its November peak.<\/p>\n
Tesla stock has fallen by 40 percent since last November. Two of its rivals, Lucid and Canoo, are down 71 and 76 percent, respectively, since their November peaks. Canoo recently warned it could run out of money before producing its first car.<\/p>\n
The last six months have been brutal for “meme stocks.” GameStop stock is down 63 percent from last November, while AMC is down 77 percent over the same period.<\/p>\n
All of these assets saw their value soar in early 2021 as the Fed and Congress pumped record amounts of money into the economy. As 2022 began, the Fed started putting that process in reverse, pulling money out of the economy to push up interest rates. And as cash has gotten scarcer, people who need money have been selling off speculative assets to get it.<\/p>\n
The cryptocurrency sell-off can be understood as part of that broader trend. And it may be far from over. The Fed signaled that it plans to continue raising interest rates aggressively in the coming months.<\/p>\n
Tim Lee was on staff at Ars from 2017 to 2021. In 2021, he launched Full Stack Economics, an independent email newsletter about the economy, technology, and public policy. You can subscribe to his newsletter about him here.<\/em><\/p>\n<\/p><\/div>\n