What's going on?

The Federal Reserve (the Fed) revealed this week that it�s planning to sell off billions of dollars of bonds � just in case interest rate hikes aren�t up to the job.

What does this mean?

The Fed has two main ways of fighting inflation: it can raise interest rates, or it can sell off some of the $9 trillion worth of bonds it�s accumulated � a move that drives down their prices, pushes up their yields, and increases the overall cost of borrowing. The central bank already started doing the first of the two last month, but now it�s resorting to the latter: the central bank said it could ramp up to selling $95 billion worth of bonds every month � almost twice as much as when it did the same thing in 2017. It suggested it�d be more aggressive with rate hikes too, which analysts took to mean we can expect at least two 0.5% hikes � rather than the typical 0.25% � sometime this year.

Why should I care?

For you personally: You have been warned.
The tech-heavy Nasdaq index fell on the news, and the message was loud and clear: tech stocks are at risk. See, investors value a stock based on what they think a company�s future profit is worth today. And since tech companies are expected to generate a higher proportion of their profits in the future than other companies, they�re the first to suffer when yields rise. Then again, you might just want to ride it out: data shows that fast-growing stocks like tech have beaten cheap-looking value stocks in three of the last four periods of Fed rate hikes (tweet this).

The bigger picture: The R word.
It�s no secret that the Fed�s efforts to limit inflation will drag on economic growth, but some economists are more pessimistic than others. Take Deutsche Bank: it said this week that it�s expecting the US economy to fall into recession next year.