The idea is that if the Fed thinks inflation is rising too fast, it might start increasing interest rates much faster than what the market anticipates and may do it for a longer period. As a result, that could drive dollars away from stocks and push up borrowing costs for companies and investors.
That is because years of very low interest rates made risky assets like stocks more appealing to investors. Meanwhile, rising inflation could also eat into profit margins.
Higher inflation could also potentially halt the U.S. government’s plan to stimulate growth in various parts of the economy.
Last Thursday, U.S. government bond yields rose amid new economic data that provided further evidence of inflation pressure.
For this week’s Trader Poll, tell us where rising bond yields could do the most damage.