Stocks sank Thursday as investors concerns mounted over a potential U.S. recession and the potential economic costs of the Federal Reserve’s ongoing fight with rampant U.S. inflation.
The S&P 500 fell by more than 3.8% as the index reached its worst intraday level of the year… The Nasdaq Composite plunged as much as 4.6%, bringing the index down as much as 32% this year on an intraday basis. The Dow sank by more than 900 points, or more than 3%, and the 10-year Treasury yield dropped to about 3.34%.
The Federal Open Market Committee’s (FOMC) Summary of Economic Projections (SEP) on Thursday showed the committee itself now sees a less rosy economy ahead as its continues to hike interest rates. The FOMC now anticipates the unemployment rate will come in at 3.7% by the end of this year (versus the 3.5% rate seen in March), and that real gross domestic product will rise just 1.7% (versus the 2.8% increase seen previously). The Fed also raised its forecast for the rate of core inflation at year-end and its expectation for where the Fed funds rate would end 2022.
The lowered growth outlook coupled with a more aggressive path on interest rate hikes ahead appeared to vindicate some pundit’s concerns that the Fed’s window to achieve a “soft landing” had nearly or already passed. Fed Chair Jerome Powell suggested Wednesday that a 50 or 75 basis point interest rate hike seemed most like at the central bank’s next meeting in July.
“The Summary of Economic Projections (SEP) and Chair Powell’s presser highlighted a Committee that sees an increasingly narrow path to a soft landing, while still maintaining that as a baseline,” Matthew Luzzetti, chief U.S. economist at Deutsche Bank, wrote in a note. “The statement removed the reference to maintaining a strong labor market as inflation is brought under control and the SEP anticipates that the unemployment rate will eventually rise…”
MacDailyNews Take: AAPL is now sub-$130, trading currently at $129.86. How low can we go?
Earlier this year, Interactive Brokers founder Thomas Peterffy said, “Inflation is 7% — 1% or 2% [in interest rate hikes] doesn’t mean anything. If they really wanted to stop inflation, they would have to raise rates to 4%, 5%, 6%.”
‘Tis best to get a handle on inflation, if you know how, while you still can. – MacDailyNews, May 11, 2021
Stop the misguided crusade against domestic energy production and profligate federal spending and inflation will be stopped dead in its tracks. It’s not difficult. – MacDailyNews, May 11, 2022
Inflation is repudiation. — Calvin Coolidge
When a business or an individual spends more than it makes, it goes bankrupt. When government does it, it sends you the bill. And when government does it for 40 years, the bill comes in two ways: higher taxes and inflation. Make no mistake about it, inflation is a tax and not by accident. — Ronald Reagan
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