In an effort to curb inflation, the fed raised its benchmark interest rate from near zero to a record above 3%. At its most recent meeting on Sept. 21, the Fed was expected to raise interest rates by another 150 basis points in the coming months, immediately causing the market to tumble.

The market has officially entered a completely different financial environment, and cautious investors may need to reassess the direction of their money. The Fed's main policy lever is interest rates; when interest rates rise, the value of future cash flow falls, hurting assets ranging from stocks and bonds to housing and many currencies. therefore,When Federal Reserve Chairman Powell says he wants to reduce inflation by raising interest rates (that is, tightening), he is telling you that the central bank needs investors to lose money.The goal is that when capital investment and consumption fall, economic growth slows and demand slows, these losses will infiltrate other parts of the economy and eventually stimulate a decline in inflation.

To understand how it got this far, look back at the 2008 financial crisis, when the Fed did just the opposite. The Fed was forced to cut interest rates to zero to ease the plight of indebted households and businesses. Low interest rates mean less interest paid by debtors seeking to repair their balance sheets. In 2008, household debt exceeded 97% of GDP; today, it is about 75%, the lowest level in 20 years.

At that time, however, for savers, high-interest accounts that once had 5% interest suddenly paid only 1% interest. The annual return on $50, 000 in savings fell from $2500 to $500, forcing those who rely on interest as their main source of income to rethink their strategies. That usually means switching to riskier assets, so money poured into the stock market, pushing the S & P 500 up sevenfold from its post-crisis low to peak in January.

Ordinary savings accounts pay the lowest interest when the federal funds rate is close to zero, prompting some to satirize that "cash is rubbish". In disguise, this sentence fuelled the frenzy of encrypted assets and meme shares, and even created a windfall for the economy, allowing companies such as Amazon.Com Inc, General Motors Co and Marriott to increase capital investment. Of course, some actions are reckless. Australia's BHP Group Ltd, for example, invested $20 billion in US shale oil projects in the early 2010s. This paid off when crude oil prices rose to more than $100 a barrel, but it became unwise when oil prices fell below $30. By 2017, BHP Group Ltd had written down billions of dollars on these investments as shale oil flooded the market.

In 2017, the US economy is back on track. With unemployment falling to 4.3%, cheap money has achieved its purpose, and the fed is slowly raising interest rates. It soon found that the economy was still too weak to deal with these problems, so it changed course in 2019. Then it will have to try other stimulus measures in 2020 to reduce the damage caused by the epidemic.

Now that the US economy can afford higher interest rates-inflation is above 8% for the first time in 40 years, the Fed is eager to impose higher interest rates. In fact, this is to make up for the time lost by being too slow. As a result, investors quickly discovered that cash is no longer rubbish-it is an important asset class that provides a safe haven. Imagine that if banks offered 5% interest on three-year certificates of deposit next summer, would investors be willing to choose this for sure?

Many Americans do this, which shows how fast the mentality of investment is changing. If the economic slowdown reduces inflation to more acceptable levels, a lot of investment opportunities will look better. Yields on Treasuries and investment-grade bonds are rising. At some point in the near future, interest rates will peak and the returns on lower-risk investment options will look attractive.

This psychological change will not be limited to safe assets such as cash. Us stocks are in a bear market: the s & p 500 is down more than 20% so far this year, and the Nasdaq 100 is down more than 30%.These returns will not improve much when interest rates rise, the economy slows and corporate profits take a hit.therefore,Investors have begun to withdraw money from stocks, with 32 consecutive weeks of outflows from equity mutual funds, according to the American Association of Investment companies.

Treasuries continued to sell off on Wednesday because of the hawkish attitude of the Federal Reserve, which has been going on for nine weeks.As a result, the yield on the benchmark 10-year Treasury note jumped 11 basis points at one point and approached the 4% mark, a 12-and-a-half-year high.The yield on two-year Treasuries, which gave feedback on the outlook for short-term interest rates, continued to soar above 4.35%, maintaining a 15-year high.

The sharp increase in interest rates by the Federal Reserve has also dealt a blow to the US housing market.Us house prices fell for the first time in a decade as mortgage rates rose. The s & p CoreLogic Case-Shiller house price index fell 0.44% in July, the first decline since march 2012, and a federal housing financing agency survey showed the biggest drop in u.s. house prices in more than a decade in august. The average interest rate on 30-year mortgages in the United States continued to soar after rising above 6%, hitting 7.08% on Sept. 27, the highest level since December 11, 2000, according to a daily survey by Mortgage News Daily, a US mortgage website. As of a few weeks ago, middle-class households had to spend 44.5% of their income to pay for middle-priced housing in the United States, the highest percentage since records began in 2006, according to the Atlanta Federal Reserve. Today, the proportion has just risen to more than 50%.

When members of the Fed board see this reaction, they will not say so, but when they may be happy.The surrender of the financial markets made their jobs easier. The faster asset prices respond to a tightening environment, the faster inflation will fall.But after the economic slowdown triggered by high interest rates, the sell-off will end and inflation will fall. The market will be in a new investment system for the first time in more than a decade.