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The Dow Jones Industrial Average is in a bear market, as stock markets continue their week-long plunge.
Wall Street is digesting the Federal Reserve’s warning that more interest rate hikes are ahead as it takes a gloomy view of the future of the US economy, where a recession looks more likely.
The Dow Jones fell more than 700 points, or 2.3%, on Friday to its lowest level since November 2020. After falling for five straight days, the index is on course to close the week 1,000 points in below its starting point. The Nasdaq and S&P 500 also fell more than 2.5% each.
Stock markets, along with bond and commodity markets, relied on the Fed’s announcement this week that it will continue to raise interest rates until soaring inflation is brought under control. , regardless of the risks of recession.
Already this year, the central bank has raised rates at a speed and scale 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 Fed Chairman Jerome Powell made it clear on Wednesday that the economy could experience a “hard landing” from 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. .