Stocks dropped today to their lowest levels since June—coming on the heels of the Federal Reserve announcing another interest-rate hike.
- The stock market has been consistently dropping since Wednesday’s announcement of the Federal Reserve’s 75-basis-point hike of interest rates.
- “Chair Jerome Powell implied in hawkish remarks that policymakers were prepared to accept economic pain in exchange for restoring price stability,” says Yahoo Finance.
- Since their peaks on Wednesday, the Dow Jones Industrial Average dropped 4.9%, the S&P 500 Index dropped 5.8%, and the Nasdaq Composite Index dropped 6.6%—marking four consecutive days of losses.
- Cryptocurrencies also took a hit, with Bitcoin dropping 3.6% on Friday and Ethereum dropping 4.5%.
- “Stocks tumbled on Friday to close out a brutal week for financial markets as surging interest rates and foreign currency turmoil heightened fears of a global recession,” says CNBC.
- Mortgage rates and bond yields have risen.
Why it’s news
The stock market continues to struggle under the weight of the Fed’s hike of interest rates.
As we previously reported, the Fed has been debating the repercussions of a third major hike since before the Jackson Hole speech by Chair Jerome Powell last month. Powell suggested that the Fed will need to maintain a restrictive policy stance for an extended period of time in order to reduce inflation.
With August’s inflation rate coming in higher than expected at 8.3%, the Fed has made the decision to go hawkish in its moves and may hike interest rates indefinitely until it can drop inflation to around 2%.
The Fed appears to be digging in for a long war against inflation.
“Federal Reserve Chair Jerome Powell used the now-familiar term ‘new normal’ to characterize the current state of the high-inflation low-growth U.S. economy,” says CNBC.
Backing up a bit
The volatile reaction from the stock market bodes poorly for the global economy. Other countries followed the Federal Reserve’s lead including the Bank of England, European Central Bank, and Switzerland’s central bank—all similarly hiking 75 basis points each this week, except for the UK’s central bank which only instituted a 50-basis-point hike.
Other stock markets also suffered crashes today, including the United Kingdom—whose central bank declared today that the country is undergoing a recession.
“The pound crashed below $1.11 for the first time since 1985, sliding 2% in addition to declines earlier in the week,” says Yahoo Finance.