Fed Chair Jerome Powell & Co. are working on inflation….
That’s all good….
America IS also doing a Recession ALSO….
And a Recession ain’t happy time either….
“The Fed and the stock market are fighting. They’re in a brawl right now,” said Callie Cox, U.S. investment analyst at online investment firm eToro, in a Friday phone interview.
“The stock market’s been itching for a pivot for months now, really since the summer, and the Fed time and time again has told us that they’re serious about inflation, they want to get inflation under control, and if that means keeping rates high for a while, so be it,” she added.
As interest rates continue to rise, businesses will face steeper borrowing costs and have less money to invest in expansion, making their stocks less appealing to investors. Households will also have less expendable income to throw in the market as interest rates on their mortgages, car payments and credit cards rise.
The stock market’s hardship, however, is an important part of the Fed’s plan….
The Fed also sees its rate hikes taking a serious toll on the U.S. economy, projecting the jobless rate to increase by 0.9 percentage points to 4.6 percent by the end of 2023 and economic growth slowing to 0.5 percent. While Fed officials say it may be possible to avoid heavy job losses in that scenario, most outside economists believe such an increase in the jobless rate would mean more than 1 million Americans losing work.
“The Fed did not welcome the disinflation trends that have just started to emerge and focused on robust job gains and elevated inflation. Any hopes of a soft landing disappeared as the Fed seems like they are committed to taking rates much higher,” said Edward Moya, senior markets analyst at OANDA, in a Wednesday note to clients.
A Fed-driven recession or steep slowdown would be more bad news for the stock market as companies struggle with lower sales and fewer households have the flexibility to put money in risky assets. But higher rates in and of themselves could be a larger and longer-term damper on the stock market….
“When we look at 2023, we kind of see a year of purgatory,” she said….