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Stock markets continued their week-long plunge on Friday as Wall Street took a gloomy view of the future of the U.S. economy, where a recession seems more likely, and digested the Federal Reserve’s warning that further interest rate hikes were to come.
The Dow Jones fell more than 650 points, or 2.21%, on Friday to 29,411, the lowest level since November 2020. After falling for five straight days, the index is on course to close the week 1,000 points below its starting point. The NASDAQ and S&P 500 also fell more than 2%.
Stock markets, along with bond and commodity markets, digested the Federal Reserve’s announcement this week that it will continue to raise interest rates until runaway inflation is contained, regardless of be the risks of recession. Already this year, the Fed has raised rates at a speed and magnitude not seen in a generation, hoping to curb the worst inflation the country has seen in 40 years.
Most Americans hoped for a “soft landing,” where the Fed’s moves to stabilize prices resulted in only a slight economic decline. But Federal Reserve Chairman Jerome Powell made it clear on Wednesday that the economy could experience a “hard landing” or a severe downturn.
“No one knows if this process will lead to a recession, or if so, how big that recession would be,” Powell told a news conference after the Fed announced it was raising rates. interest rate of 0.75% for the third consecutive time.
“Nevertheless, we are committed to bringing inflation down to 2% because we believe that a failure to restore price stability would mean much more suffering later.”
Powell’s comments and the bleak outlook for FedEx, the multinational corporation with strong connections to global supply chains, have sown confusion over the future, with Goldman Sachs analyst David Kostin describing the economic outlook as “exceptionally murky”.
“The paths for inflation, economic growth, interest rates, earnings and valuations are all changing,” Kostin wrote on Friday.
“Based on our discussions with our clients, a majority of equity investors have taken the view that a hard landing scenario is inevitable and they are focused on the timing, magnitude and duration of a potential recession and on investment strategies for those prospects,” he also wrote. .