Stocks flip red as investors try to shake off recession fears
Major indexes lost ground on Wednesday after Federal Reserve Chairman Jerome H. Powell acknowledged in congressional testimony that higher interest rates could lead to a recession, saying it was “certainly a possibility”. Last week the Fed introduced a three-quarters of a percentage point jump, its biggest increase since 1994, as part of an aggressive strategy to contain inflation, which has been high for decades.
Fed Chairman Acknowledges Higher Interest Rates Could Trigger Recession
On Wednesday, Powell told lawmakers on the Senate Banking Committee that the Fed was determined to roll back runaway inflation. “We understand the difficulties caused by high inflation,” he said. “We are firmly committed to bringing inflation down, and we are moving quickly to do so. We have both the tools we need and the determination it will take to restore price stability on behalf of families and communities. American companies.
Inflation hit a new high in May – climbing 8.6% year-on-year – signaling that Fed policies aimed at containing soaring prices for food, fuel, housing and other necessities do not yet have a robust impact. This shook consumer and investor confidence and underscored the growing likelihood of a recession.
Citing higher interest rates and weak consumer demand, analysts from Citigroup and Deutsche Bank predicted a 50% chance for a coming recession.
Powell will appear before the House Financial Services Committee on Thursday.
Investors have a number of economic data points to analyze. The yield on the benchmark 10-year US Treasury plunged to 3.02%, its lowest in two weeks. Bond yields move inversely to prices.
In the manufacturing and services sector, the US Manufacturing Purchasing Managers’ Index fell to 52.4 in June from 57 the previous month. The services PMI fell to 51.6 from 53.6 in May. The index is released by S&P Global after surveying over 300 business executives.
“The survey data is consistent with the economy expanding at an annualized rate of less than 1% in June, with the goods-producing sector already in decline and the vast services sector slowing sharply,” said Chris Williamson, chief economist at S&P Global. Market Intelligence, in a report. As hundreds of households cut non-essential goods and activities – such as travel and meals – producers experienced the first contraction in new orders since July 2020.
Employment has been reduced due to supply and demand issues. The S&P Global report says manufacturers and service providers are struggling to hire or retain workers, while falling consumer spending is making employers reluctant to replace customers.
Americans are starting to withdraw from travel and restaurants
New jobless claims fell by 2,000 to a seasonally adjusted 229,000, according to new data released Thursday by the Labor Department, indicating that the number of Americans filing for unemployment benefits remained relatively flat for the year. A widely watched indicator of layoffs, the level of jobless claims will be closely watched for signs of a weaker labor market as the Fed pursues more aggressive monetary policy and fears of a possible recession increase.
For homebuyers, the rising cost of borrowing has put a strain on an already declining housing market. The latest data from Freddie Mac showed the average weekly 30-year fixed-rate mortgage – the most popular home loan product – rose to 5.81%, nearly double what it was a year ago. one year old. The combination of rising mortgage costs and high house prices, which averaged $428,700 according to St. Louis Fed data, could lead to lower sales.
“However, in reality, many potential buyers are still interested in buying a home, keeping the market competitive but stabilizing the past two years of scorching activity,” Freddie analysts wrote. Mac.
Mortgage costs $128,000 more over 30 years for $250,000 home