Pretty much title. I’ve seen this talked about a lot but I only very vaguely know what all this means, could someone elaborate on what happened, why it happened and what the consequences of it are?
Pretty much title. I’ve seen this talked about a lot but I only very vaguely know what all this means, could someone elaborate on what happened, why it happened and what the consequences of it are?
All investment banking, VC firms, hedge funds, and other financial ghouls and goblins live and die depending on the interest rate set by the US Federal Reserve. When it’s low, everyone can borrow for cheap, and if you have an investment opportunity you are much more likely to make your money back since you don’t have as high of a wall to surpass to make profit. When it’s high, consumption slows down because it’s less likely for investments to be profitable.
In case of “no more free money” that phrase is commonly used to talk about VC firms that make very unwise investments that are highly unlikely to make money back, but interest rates are low enough that they don’t care as long as one or two of the companies they invest in shoot up in value. Raise the interest rate and it’s bad news for all the techbros making dog dating apps and hoping to catch a golden parachute from VCs who were, previously, mathematically losing money by thinking it twice before they gave you millions of dollars. This isn’t just a big deal for startups, it also is bad news higher up in companies that need big investment to keep growing (AKA all companies) so a drastic hike in interest rate can lead to layoffs.