Fed must act swiftly in the face of recent spikes in inflation data: On ‘The Claman Countdown,’ Federated Hermes chief equities strategist Phil Orlando & Sarge986 president Stephen Guilfoyle debate how many many rate increases it will take to reduce inflation.’
As inflation rises and the Federal Reserve becomes more aggressive, the stock market has momentarily recovered from the massive selloff which began earlier this year. However, stocks are expected to face greater losses.
In a recent research note, Morgan Stanley’s analysts claim that the relief rally may be short-lived since recession risks are rising.
This bad market will not be done even if we escape a recession, according to the strategists, led by Michael Wilson. “Counter-trend rallies may persist,” the analysts stated in a note.
Based on the persistent loss of job claims and reduction in work opportunities, Wilson predicted that the chances of an economic recession would increase to 36% by 2017. Margin pressures will reduce in the second half, according to him, although he is “skeptical” about that.
On Wednesday, January 27, 2021, in New York, pedestrians cross in front of the New York Stock Exchange. Photographed by AP’s John Minchillo for use in this story.
Consensus projections do not take into account the risk to margins posed by the combination of rising labor, raw material, inventory, and transportation costs, according to Wilson.
Analysts are concerned that the Federal Reserve may have to increase interest rates so much it causes a recession because of rising inflation.
After Fed officials authorized a 75-basis point increase in interest rates in June — the first since 1994 — the federal funds range now sits between 1.5% and 1.75 percent. Chairman Jerome Powell told reporters following the meeting that an increase of that amount is on the table for July despite evidence of persistently elevated inflation, pushing investors to reevaluate the economic outlook.
As a result of the blisteringly hot Labor Department data issued on Wednesday, which indicated that the consumer price index grew by 9.1% in June from a year earlier, above market estimates, investors’ expectations for a 100-basis point rate increase were raised. Since December 1981, the rate of inflation has risen at the quickest pace. This month’s Federal Reserve meeting is expected to see a 30 percent possibility of an enormous rate increase, according to CME Group’s FedWatch tool.
Federal Reserve Chairman Jerome Powell addresses the Senate Banking, Housing & Urban Affairs Committee on Capitol Hill on Wednesday, June 22, 2022, in Washington, as he gives the Monetary Policy Report to the panel on Capitol Hill. Photograph by Manuel Balce Ceneta for AP.
When interest rates rise, the cost of borrowing for both consumers and businesses rises, which has a negative impact on the economy. Some credit card companies have increased their rates to 20% while mortgage rates already are nearing 6%, the highest level since 2008.
Atlanta Fed former president Raphael Bostic told journalists in St. Petersburg, Florida on Wednesday that “everything is in play” following the new inflation statistics. Bostic responded, “It would imply everything,” when asked if it included a full percentage point increase in interest rates.
Although Powell has recognized the possibility of a downturn, he has said that the Fed’s primary focus should be on containing inflation.
“Is there a chance that we’ll go too far with this? Yes, there is the possibility of harm “Last month, he mentioned this. Failure to restore price stability would be the worse blunder, let’s put it that way.