LEILA FADEL, HOST:
The U.S. stock market has been seeing some wild swings. It's up. It's down - mostly, it's down. The Dow, the S&P 500 and the Nasdaq have all fallen by more than 20% from their peaks, putting them into bear market territory. But this extreme and painful volatility is not just confined to stocks or to the U.S. it's playing out worldwide. NPR's David Gura joins us now to explain. Hi, David.
DAVID GURA, BYLINE: Hey, Leila.
FADEL: So David, tell us more about what's going on in markets around the world here.
GURA: So the fear and the panic that we've seen driving steep sell-offs in U.S. stocks has started to spread to the bond market, where there also have been steep sell-offs and where yields on U.S. Treasuries are at levels we haven't seen in more than a decade. It's also spread to commodities. Oil prices have fallen so much. They're almost back to where they were at the start of the year. And there's fear and panic in the currencies market - the British pound trading at a record low against the U.S. dollar this week, China's currency also weakening considerably and Japan intervening to try to prop up the yen. As one professional investor told me, Leila, everything is starting to take a big hit.
FADEL: So what's driving all this volatility?
GURA: There is so much going on affecting markets - of course, high inflation...
FADEL: Right.
GURA: ...Which is a problem globally. Then there's the war in Ukraine and problems with supply chains. But those are issues we've heard about for a while now. What's new is how investors are pointing their fingers squarely at the Federal Reserve and other central banks. Many of them are hiking interest rates, which is increasing borrowing costs around the world and spooking markets. And that's a big change, according to investor and economist Mohamed El-Erian, who's with the firm Allianz. Here's how he explained it on CNBC.
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MOHAMED EL-ERIAN: This is about governments and central banks being sources of volatility rather than volatility suppressors.
GURA: You know, in general, central banks do everything they can to keep markets calm. But right now, that is not their main focus. They want to get inflation under control. So the Fed, this institution that we count on to keep the economy on track or to put it back on track, is now getting blamed for all this topsy-turvyness (ph). And, Leila, it's also being hurt by this volatility.
FADEL: Can you explain that? How's the Fed getting hurt?
GURA: So it first predicted this bout of inflation would not last long, it would be short-lived, a symptom of the global pandemic. But it's become long-lasting and really insidious. And what Wall Street wants is clear guidance from the Fed and from other central banks about where they think the economy is headed and what their plans are. And they're struggling to give it. Daragh Maher is the head of research for the Americas at the bank HSBC.
DARAGH MAHER: It's very difficult for central banks to offer guidance because everything hinges on the data. And, you know, what's driving the data? Energy prices, food prices - all of these things are really difficult to call, as we found out.
FADEL: So other central banks around the world are also playing a big role.
GURA: Yeah. So they're all locked in this fight against high inflation. Sweden just raised interest rates, so did Norway. Brazil hiked rates 12 times, then decided to take a break. This week, after the pound hit that record low against the dollar, the United Kingdom Central Bank first stayed the course. Then today, the Bank of England announced it plans to intervene. It's going to buy government bonds at an urgent pace to try to stabilize the bond market, which has taken a hit. The fallout from the weakening pound could pose a risk to financial stability in the U.K., the bank said in a statement.
FADEL: OK. So while the pound weakened, the U.S. dollar strengthened. What effect does such a strong dollar have worldwide?
GURA: The consequences are huge and really wide-ranging. And Fed policies, these rising rates, have really pushed up the value of the dollar relative to other currencies. Now, a strong dollar is good for U.S. importers, for American travelers. But it also causes a lot of pain. I talked about this with Edmond Shing, who's the chief investment officer at the bank BNP Paribas.
EDMOND SHING: We're at a point where the U.S. dollar is acting like a wrecking ball and hitting all financial markets very, very hard.
GURA: That's because it really impacts trade. So many transactions are done in dollars. And imports in many countries are going to be more expensive because their currencies have weakened. And this is hurting multinational companies based in the U.S. that do business elsewhere. When they convert the money they've made in other currencies into dollars, they'll take a hit.
FADEL: Will we see any of this calm down any time soon?
GURA: That seems unlikely. The volatility is not going anywhere. The Fed and many other central banks plan to keep raising interest rates. The dollar shows no signs of weakening. And the uncertainty remains. Professional investors tell me, keep an eye on what companies say. Many of them are reporting quarterly results in the coming weeks. We'll see how they've weathered this challenging economy. And, Leila, they'll update their outlooks for the months to come.
FADEL: NPR's David Gura. Thank you for your reporting.
GURA: Thank you. Transcript provided by NPR, Copyright NPR.
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