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Stock markets continued their week-long plunge on Friday, as Wall Street embraced a bleak picture of the US economy’s future, where a recession looks more likely, and the Federal Reserve’s warning that more rate hikes are on the way was digested. .
The Dow fell more than 650 points, or 2.21%, on Friday to 29,411, its lowest level since November 2020. After falling five days in a row, the index is on track to end the week 1,000 points lower than where he started. The NASDAQ and S&P 500 also fell more than 2%.
Equity markets, as well as those for bonds and commodities, have digested this week’s announcement from the Federal Reserve that it will continue to raise interest rates until inflation is contained, regardless of the risks of a recession. This year, the Fed has already raised interest rates at a rate and magnitude not seen in a generation, hoping to slow down the worst inflation the country has experienced in 40 years.
Most Americans have hoped for a ‘soft landing’, with the Fed’s measures to stabilize prices provoking only a slight economic slowdown. But Federal Reserve Chairman Jerome Powell made it clear on Wednesday that the economy could experience a “hard landing” from a serious downturn.
“Nobody knows if this process will lead to a recession and, if so, how big that recession will be,” Powell said at a news conference after the Fed announced it would raise interest rates by 0.75% for the third time in a row.
“Nevertheless, we are committed to bringing inflation back to 2% because we believe that failing to restore price stability would mean much more pain later on.”
Powell’s comments and the bleak outlook from FedEx, the multinational company heavily linked to the world’s supply chains, has left some confusion about the future, with Goldman Sachs analyst David Kostin describing the economic outlook as “unusually murky.”
“The forward paths of inflation, economic growth, interest rates, earnings and valuations are all in flux,” Kostin wrote Friday.
“Based on our client discussions, a majority of equity investors believe that a hard landing scenario is inevitable and their focus is on the timing, magnitude and duration of a potential recession and investment strategies for that outlook,” he also wrote. .