When interest rates drop, safe investments (such as bonds), become less attractive. The yield on those investments is not high. This means that excess capital gets reallocated towards riskier bets (such as stocks, or venture investing) to try to yield a return that way. More speculative bets happen as a result of free flowing cash to high growth organizations. Companies are willing to lose money in exchange for market share because investors are willing to bet on companies that are losing money on the off-chance that one of them yields a 100x return. This game becomes more attractive when other means of growing investments are harder to come by.
Now, interest rates are higher. I can throw money into a savings account at 4.5% APY. A potential 7% return by throwing it all into high growth stocks (which also carry significant downside risk) is comparatively less attractive. I'm now much more incentivized to invest in companies that are stable and carry less downside risk. Those companies are the ones that are spending more responsibly and generating positive cash flow.
If you do understand that higher interest rates suppress higher risk investments, then there's a direct line between that and slowing VC funding and depressed investor sentiment, which is ultimately what's feeding these layoffs.
The indirect link is not always true. Interest rates can be risen in a bull market. When done slowly, this effect is less pronounced. In this case, we massively shifted rates in a short amount of time during a period of high inflation.
You say all of this about economics like the field isn't one of the worst verified "scientific" fields out there
Public markets operate on opinions and feelings more than science. That sentiment of the markets is not high right now is clear. Look at every publicly traded tech company’s performance in the last 12 months.
That's nonsense. Do you understand what the scientific method is?
I believe you also understood precisely what I meant, and are trying to form a “gotcha.”
I’ve lost the plot on your point here. That interest rates impact spending and corporate decisions is verifiable fact, using the ever-elusive scientific method which you’ve so helpfully educated me about. If you truly believe in this method, I’d suggest you exercise it and watch how interest rate changes shift economies and markets every time they happen in history. It just so happens to be precisely the exact reason why the Fed moves them in the first place. It was widely discussed when rates began rising that the impact would likely be an increase in unemployment. The Fed specifically addressed this point, and stated that while it was not an explicit goal to increase it in this case, it may happen.
I believe you also understood precisely what I meant, and are trying to form a gotcha.
In any case, I’ve lost the plot on your point here. That interest rates impact spending and corporate decisions is verifiable fact, using the ever-elusive scientific method which you’ve so helpfully educated me about. If you truly believe in this method, I’d suggest you exercise it and watch how interest rate changes shift economies and markets every time they happen in history. It just so happens to be precisely the exact reason why the Fed moves them in the first place. It was widely discussed when rates began rising that the impact would likely be an increase in unemployment. The Fed specifically addressed this point, and stated that while it was not an explicit goal to increase it in this case, it may happen.
For most technology companies, salaries and compensation are one of if not the top line item in the budget. And during a time of cheap money (which is objectively true - this is not someone regurgitating other comments), companies invest in new initiatives.
So when headcount is the top line item, and new initiatives are less desirable as capital becomes more expensive…it’s pretty clear that there’s a small set of viable options to make the math work again.