Recession fears rock markets

The prospect of a looming recession in 2023 weighed on the market last week, amid signs of longer interest rates and lower consumer spending, pushing Wall Street stocks to their lowest level since late October.

this is, The US Federal Reserve has raised key lending rates by an expected 50 basis points – After raising rates by 75 basis points four times in a row – but said the fight to bring inflation down to 2% will continue until 2023.

There are concerns that the Fed’s stubborn adherence to its 2% inflation target could plunge the US and global economy into a deep recession in 2023.

Last Friday, Wall Street’s major indexes fell for the second week in a row, with the Dow Jones Industrial Average down 1.7% to 32,920.46 points.

Meanwhile, the S&P 500 fell 2.08% last Friday to close at 3,852.36 points for a total loss of 5.58% for December. Tech-rich Nasdaq fell 2.7% to 10,705.41 points.

Selling began last Wednesday after the Federal Reserve recently raised its overnight borrowing rate. The central bank has also said it will continue to raise rates in 2023, predicting the interest rate to peak at 5.1%, higher than expected. With his 0.5 percentage point rise last Wednesday, the interest rate target range is now 4.25% to 4.5%, the highest in 15 years.

Trading was particularly volatile last Friday, with a large number of options expiring. According to Goldman Sachs, US$2.6 trillion (S$3.5 trillion) worth of index options expired, the highest amount “relative to the size of the stock market in nearly two years.”

Meanwhile, the Fed’s latest economic forecast seems to have built in the assumption that inflation will pick up in December. Fed officials now expect so-called core inflation (excluding food and energy) to end at about 4.8% in 2022, up from 4.5% they predicted in September, according to quarterly forecasts. .

In Singapore, a slowdown in global economic growth prospects is slowly being reflected in local markets, with the Straits Times Index stalling at around the 3,200 level over the past three weeks. Last Friday he closed at 3,240.81 points, roughly flat from a week ago. This comes amid data showing a sharp decline in domestic non-oil exports in November, suggesting a possible slowdown in the economy.

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As the Federal Reserve (Fed) prepares to slow down the pace of future rate hikes, investors remain wary of the risk that the central bank will tighten too much and sooner or later pause. increase. Economics.

Allianz chief economic adviser Mohamed El-Erian says the Fed may have to abandon its 2% inflation target in 2023 as past policy mistakes have left it behind in fighting inflation. I believe there is.

Bill Ackman, billionaire investor and founder of hedge fund Pershing Square Capital Management, agrees. He believes the US economy will collapse if the Fed tries to lower its inflation target to 2%.