Federal Reserve chairman Jerome Powell recently came out in stating ETFs were not the main reason behind the market correction earlier this month.
“We looked after the volatility came and then subsided. We looked carefully to try to understand really what did happen, and it seems like the markets were generally orderly through almost all of that time,” Powell said Tuesday in response to a question during his testimony to the House Financial Services Committee. “ETFs are a particular form of fund, and I don’t think they were particularly at the heart of what went on, on those days.”
Despite the benefits of the ETF investment vehicle, a number of naysayers are concerned that ETFs contribute to increased volatility, especially during periods of heightened market upheavals when institutional-sized ETF traders redeem large basket of shares.
Earlier in February, the S&P 500 officially dipped into correction territory after falling more than 10% from its record January highs, but it has pared more than half of its lasses in recent weeks. Traders have blamed the pullback on rising worries over inflationary pressures and a potentially quicker-than-expected interest rate hike out of the Federal Reserve, CNBC reports.