Wall Street is poised for another day of losses on Friday, as the Federal Reserve’s most recent interest-rate increase reignites fears of a recession.
Friday at 2:20 p.m. Eastern time, the S&P 500 fell 88 points, or 2.4%, to 3,670, while the Dow Jones Industrial Average fell 747 points, or 2.4%. The Nasdaq fell 2.7%, its largest one-day decline since June 28. The major U.S. indices are likely to end the week in the red for the fourth time in the past five weeks, barring a dramatic reversal.
In an email sent in the morning, LPL Financial’s chief global strategist Quincy Krosby stated, “Tough-talking central bankers pursue aggressive monetary policy to get inflation under control, whipsawing markets domestically and globally.”
Oil prices dropped 3%, threatening to drop below $80 per barrel for the first time since the beginning of January.
Federal Reserve increases key interest rate once more 00:23
Global recession apprehensions
After the Federal Reserve raised its main rate on Wednesday for the fifth time this year and signaled further hikes, central banks in the United Kingdom, Switzerland, Turkey, and the Philippines all boosted rates.
In a study, Oanda’s Edward Moya stated, “Global equities are struggling as the world predicts that rising interest rates would precipitate a much more rapid and potentially catastrophic global recession.”
Investors are concerned that central banks may be willing to suffer a harsh economic downturn in order to maintain price stability.
Indications that the U.S. economy is weakening are cited by some as justification for the Fed to halt its rate-hike plans. However, Chairman Jerome Powell stated on Wednesday that rates will remain elevated for an extended period if necessary to return inflation to the 2% target.
Inflation among U.S. consumers decreased to 8.3% in August from 9.1% in July, but prices remain around a four-decade high as food and housing expenses continue to rise. Core inflation, which excludes volatile food and energy costs to provide a clearer picture of the trend, increased to 0.6% in August from 0.3% in July. This indicated that upward price pressure remained strong.
Inflation remains strong despite the decline in gas prices at 07:54
Last week, Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance, stated in a note, “Price levels continue to rise – they are not slowing down month-over-month (i.e. accelerating, not decelerating), and this inflation problem is not going away quietly.”
Wednesday, the Federal Reserve raised its benchmark rate, which impacts numerous consumer and commercial loans, to a range of 3.00 to 3.25 percent. It published a projection indicating that it anticipates the benchmark rate to be 4.4% by the end of the year, a full point higher than what was anticipated in June.
In confirming his commitment to reducing inflation, Fed Chair Jerome Powell sounded hawkish despite the economic consequences of raising interest rates.
“Reducing inflation will need a sustained period of below-trend growth and an easing of labor conditions,” he stated at a Wednesday press conference.
Powell continued, “We will persist until we are certain that the task has been completed.”
In electronic trading on the New York Mercantile Exchange, the price of U.S. crude fell $2.75 a barrel to $80.74.