Recession Fears Rock Markets Amid Fed’s Inflation Battle: What You Need To Know This Week

The Federal Reserve’s latest rate hike is expected to keep markets busy in the shortened week leading up to the holiday. Wall Street closes Monday and markets watch June 16 for the first time.

Last week, the S&P 500 posted its worst weekly performance since March 2020, shedding 5.8% after falling into a bear market on Monday. This decline also marked the benchmark index’s 10th drop in the past 11 weeks.

The US Federal Reserve raised interest rates by 75 basis points on Wednesday, the largest hike in almost three decades. Fed Chair Jerome Powell also hinted at more aggressive tightening as policymakers step up their fight against inflation.

On Wall Street, the move sparked a wave of recession calls and threw markets into disarray.

The Dow Jones Industrial Average was down nearly 5% on the week, briefly dipping below 30,000. The Nasdaq pared some losses to close higher on Friday, but still ended the week down about 1.7%. On Saturday, Bitcoin (BTC-USD) price fell below $18,000 for the first time since 2020 as risk assets remain under pressure.

“The key takeaway for investors is that inflation has the Fed’s attention and that it takes it very seriously,” said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance. “Despite the fact that higher interest rates are bad for risky assets – other things being equal – it is more important to get inflation under control and the quick (and flexible) move from 0.5% up to 0.75% in in a very short time has shown a renewed willingness to fight inflation with deeds rather than words.”

While the Fed’s unprecedented action on Wednesday reaffirmed its commitment to normalizing price levels, investors and economists fear it also increases the risk that its anti-inflation measures could plunge the economy into recession.

“Our worst fears about the Fed have been confirmed: they have fallen way behind the curve and are now playing a dangerous catch-up game,” Bank of America analysts said in a statement on Friday. The company cut its GDP growth forecast to almost zero and sees a 40 percent chance of a recession next year.

“In spring 2021, we argued that the biggest risk to the US economy was a boom-bust scenario,” the bank’s research team noted. “Over time, the boom-bust scenario has become our baseline forecast.”

Meanwhile, analysts at JPMorgan warned that the S&P 500’s decline implies an 85 percent chance of a recession.

WASHINGTON, DC - JUNE 17: Federal Reserve Chair Jerome Powell waits to make remarks at the Conference on the International Role of the US Dollar on June 17, 2022 in Washington, DC.  Powell said the Federal Reserve is focused on containing inflation and bringing it back to its 2% target.  (Photo by Kevin Dietsch/Getty Images)

Federal Reserve Chairman Jerome Powell waits to make remarks at the Conference on the International Role of the US Dollar June 17, 2022 in Washington, DC. (Photo by Kevin Dietsch/Getty Images)

All eyes will be on Powell in the coming week as the Fed Chair testifies before the US Senate Banking Committee on Wednesday morning.

The Fed chair is adamant the US economy can avoid an economic slowdown, even as market participants lose confidence in the prospect of a “soft landing” — a period when economic growth will slow just enough to to suppress inflation, but without fueling the economic downturn.

“We’re not trying to create a recession now, let’s get that straight,” Powell told reporters Wednesday. In remarks at a conference in Washington on Friday, Powell also doubled down on the central bank’s goal of curbing rising price levels.

“My colleagues and I are very focused on bringing inflation back to our 2 percent target,” he said. “The Federal Reserve’s strong commitment to our price stability mandate contributes to widespread confidence in the dollar as a store of value.”

Powell’s optimism doesn’t seem to be shared by either Wall Street or business leaders.

A survey released by the Conference Board found that 60% of chief executive officers and other C-suite leaders around the world believe their geographic region will enter a recession by the end of 2023. About 15% of CEOs believe their region has already entered the recession.

Bloomberg Economics models suggest the risk of a recession has risen to over 70%.

NEW YORK, NEW YORK - JUNE 14: People walk in front of the New York Stock Exchange (NYSE) in the Financial District in Manhattan on June 14, 2022 in New York City.  The Dow rose in morning trade after falling over 800 points on Monday, sending the market into bearish territory on fears of a possible recession.  (Photo by Spencer Platt/Getty Images)

People walk in front of the New York Stock Exchange (NYSE) in the financial district in Manhattan on June 14, 2022 in New York City. (Photo by Spencer Platt/Getty Images)

Another key sentiment indicator is set to be released next week. The University of Michigan is expected to release the final reading of its sentiment index for June; The first reading of the June survey fell to its lowest on record as inflation weighs on consumers.

Corporate earnings will be light for the week, with Lennar Corporation (LEN), Rite Aid Corporation (RAD) and FedEx Corporation (FDX) all expected to report quarterly results.

economic calendar

Monday: No significant reports planned for publication.

Tuesday: Chicago Fed National Activity IndexMay (0.47 in the previous month), Sale of existing homesMay (5.40 million expected, 5.61 in previous month), Sale of existing homesMoM, May (-3.7% expected, -2.4% mom)

Wednesday: MBA Mortgage ApplicationsWeek ending June 17 (-6.6% in previous week)

Thursday: Current account balanceQ1 (-$279.0 billion exp., -$217.9 billion qoq), Initial jobless claimsweek ended June 18 (232,000 expected, 229,000 last week); Ongoing Claimsweek ended June 11 (1.328 million expected, 1.312 million last week); S&P Global US Manufacturing PMIJune preliminary (56.3 expected, 57 in previous month); S&P Global US Services PMIJune preliminary (53.5 expected, 53.4 in previous month); S&P Global US Composite PMIJune preliminary (53.6 in previous month); Manufacturing operations of the Kansas City FedJune (23 in previous month)

Friday: vibes university of michigan, June final (50.2 expected, 50.2 in previous month), Current Conditions of the University of MichiganJune final (55.4 in the previous month), University of Michigan ExpectationsJune final (46.8 in the previous month), University of Michigan 1-year inflationJune final (5.4% in the previous month), University of Michigan 5-10 year inflationJune final (3.3% in the previous month), New Home SalesMay (595k expected, 591k last month), New Home SalesMoM, May (0.7% expected, -16.6% mom)

results calendar

Monday

No significant reports planned for publication.

Tuesday

Before market opening: Lennar Corporation (LEN)

After market close: La-Z-Boy Incorporated (LZB)

Wednesday

Before market opening: grain ferry (KFJ), Winnebago Industries (WGO)

After market close: KB Home (KBH)

Thursday

Before market opening: FactSet Research (FDS), rite aid (WHEEL), apogee company (APOG)

After market close: FedEx (FDX), blackberry (BB)

Friday

Before market opening: CarMax (KMX)

After market close: No significant reports planned for publication.

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

For the latest stock market news and in-depth analysis, including events moving stocks, click here

Read the latest financial and business news from Yahoo Finance

Download the Yahoo Finance App for Apple or Android

Follow Yahoo Finance on Twitter, Facebook, Instagram, flipboard, LinkedInand youtube

Leave a Comment