Monday's global stock market sell-off led to calls for the Federal Reserve to step in , but that could prove to be even more trouble for investors.
This sell-off is not being driven banking crisis, and an emergency rate cut by the Fed may hurt more than it helps, said Lawrence McDonald, a bestselling author and market risk expert.
"If they do that, they weaken the dollar, they actually strengthen the yen, and this whole carry trade gets worse," McDonald said.
The " carry trade " mentioned by McDonald and others as a key reason for this sell-off is related to interest rates in Japan.
Central banks in the United States and other developed markets have hiked interest rates aggressively in the post-pandemic period to fight inflation.
Persons:
Lawrence McDonald, McDonald, Lehman
Organizations:
Federal Reserve, Bank of Japan, U.S, Fed, Lehman Brothers
Locations:
Japan, Central, United States