The Federal Reserve‘s decision to hike interest rates by 75 basis points this week only increases the chances of a prolonged economic recession and a deep sell-off in the stock market, according to Axonic Capital’s Peter Cecchini.
That’s because the Fed is just now getting aggressive in tightening financial conditions as data begins to show a slow-down in inflation. That scenario can cause significant policy whiplash that leads to economic hardship for millions, according to Cecchini.
That’s why it would have paid dividends for the Fed to reign in consumer demand by kicking off its interest rate hike cycle earlier than it did, as that would have helped tame demand before supply chain constraints and higher oil prices added fuel to the fire.
To check today’s Fed interest rates – Click on the link here.
Instead, the Fed is embarking on a fast and furious interest rate hike path that will likely include two back-to-back 75 basis point interest rate hikes in July, which followed a 25 basis point and a 50 basis point interest rate hike in March and May, respectively. In late 2021, the Fed had only expected to raise interest rates once in 2022.
Fear of Recession breaths over the Wall Street – why is that.
All of this means stock market investors could still see significantly more pain ahead, even after accounting for the S&P 500’s year-to-date decline of more than 20%.
A 50% decline in the S&P 500 from its January peak would send the index to the 2,400 level, representing potential downside of more than 30% from current levels.