from the Walter Cronkite school of journalism at Arizona state university. Judy: Today's interest rate hike from the fed was the sixth one this year. It has been decades since the fed has acted this aggressively to slow inflation. It's an approach that has been supported by some economists but is also being criticized as excessive by other economists and by a number of democratic lawmakers. Markets reacted strongly to the comments by fed chairman Jay Powell. At first, traders and investors were encouraged by a statement suggesting there could be a pause or a slower pace of rate hikes. But about a half hour later, the chairman expanded on that idea. >> At some point as I've said in last two press conferences, it will be appropriate to slow the pace of increases as we approach the level of interest rates that will be significantly restrictive to bring inflation down to the 2% goal. There is significant uncertainty around that level of interest rates. Even so we still have some ways , to go. And incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected. Judy: The latter part of those remarks -- about some ways to go and how the ultimate interest rate level could be higher than previously expected -- seemed to badly rattle investors. All the major stock indexes fell significantly afterward, including the Dow Jones industrials, which saw an 800 point negative swing after his remarks. The comments also had a mixed effect on the value of bonds. These market swings tied to interest rates can be hard to understand -- and it affects people's net worth. Economics correspondent Paul Solman tries to help break down how investors see the impact of higher rates over the long term. >> Have taken a hit of $48,000 to my 401(k). >> I feel like basically, when stocks go down, bonds are supposed to go up. >> It's kind of like a seesaw. They would balance each other out. I thought the first indication would be ok. >> It's been a scary year for those of us counting on our investments, with both stocks and bonds having tank in tandem. The consensus culprit, inflation, and the effort to suppress it. >> The fed is attempting to slow inflation. >> What is a bond? >> A bond is a form of debt. The way the government's borrow, they say give us some money now and we will give you money back in future and we will pay some interest along the way. This is a form a bond, so you can sell it to other people. It is a tradable debt. >> What is happening now that is killing the bond market and making bonds worth less than they were? >> When the government goes to issue debt, which it does on an almost daily basis, it has to offer a higher interest rate. You look at all debt and say I can buy the old debt from you, but I want it to match the yield I get on the new debt. The way to match it is for the value of the old debt to Paul. >> Like back in the 1970's when gradual inflation surged due to a gasoline shortage fueled by OPEC. Interest rates surged in response. So let's go back in time. I brought with me a facsimile of a bond from 1976 and I got the 1970's Thai. You have a 1984 bond. >> I'm wearing and Adam Smith free-market tie. >> About this and it was at 8% interest rate. It's now 1984, I need the money, so I want to sell this to you, so give me $5,000. >> I appreciate the offer and I do recognize this is a U.S. Government debt so it is good for payment, but I'm a little put off by the interest rate. But I have one right here that's offering me 12.15% interest rate. Interest rates have gone up, so I will buy the old bond for you, but for less than $5,000, and I'm fine with that. >> This is my when interest rates go up, now bond values, the bond market, goes down. >> The interest rate being offered on new bonds is higher than on the old bonds, so you need the yield to match in order for people to be willing to buy the old bonds. Otherwise they will buy new bonds. >> Ok, but it doesn't explain why stocks sank also as interest rates rose. >> The king of Sweden gives you the old metal in that case. Why does it have value? It has value because you have rights to the current and future earnings of the firm. >> Why are stocks going down now? >> You have to understand three elements that enter injured their value or change in value. First, the earnings. The second factor is, are the earnings going to grow from here? That would be good, makes it even more valuable, or are they going to decline and make it less valuable? The future earnings in stock are risky, unknown. The future payments on bonds are known. To compensate people for taking the risk of uncertainty about the future earnings of stock, they have to be comp aside -- compensated with a higher than expected yield on bonds. >> I ask you why our stock prices going down, you say to me concerns over possible recessions in the future. We know that the fed is purposely trying to raise interest rates, so we know there's a greater chance that we might have a recession, which means lower earnings, and competing rates, greater uncertainty, the impact of inflation, all those things. Put it together, it's not a surprise. The question is, what will they do tomorrow? It depends on what new information we have, compared to what we know today. >> So there is no simple answer to stocks continuing to go up or down. >> You cannot do it and giving 830 second soundbite answer as to why the stock market is going to go up or down. Tell us the reason, when there are multiple reasons. It's too complicated. I wish I could tell you otherwise, but that's how it is.
