The Impact of the US Increasing Interest Rate on Internet Industry: A Short-term Perspective

Abstract

On March 16, 2022, Federal Reserve released the news that it was going to raise interest rate by 25 basis points, which officially commenced the year-long interest rate hikes. During this a year and half period starting from March 16, 2023, to July 26, 2023, Federal Reserve raised interest rate 11 times and brought the Federal Funds Rate reached 5.25% to 5.50%. This is the largest interest rate hike since 2000s and has had a significant impact on various areas, including the internet industry. This paper selected Dow Jones Internet (DJUSNS) index as an indicator to analysis how market reacts to interest rate hikes in the internet industry and uses ARIMA model to predict how DJUSNS would behave without the increasing in interest rate. This study predicts the possible future of the internet industry and provides investors who are interested in internet industry with market trends and investment opportunities. The paper concludes that the internet industry is negatively impacted by interest rate increases, primarily attributed to the following two factors: increase in the cost of capital and the decrease in investment returns.