Dow drops 700 points amid fears Fed will tighten monetary policy, PMI index continues to shrink

Reporters reported that The Dow Jones Index continues to decline. Recently, it has fallen more than 600 points, falling off the 30,000 line amid concerns that the Federal Reserve’s overly tight monetary policy will put the US economy on the brink of recession.

In addition, the market was also under pressure from the S & P. ​​Global revealed that the Purchasing Managers’ Index (PMI), the basic US manufacturing and services sector, contracted for the third month.

As of 11:38 pm GMT, the Dow Jones Industrial Average was at 29,377.88, down 698.80, or 2.32%, while the S&P 500 and Nasdaq were both down 2.22%.

All stocks fell today. Led by energy stocks following the fall in oil prices.

The Dow is expected to close for a fourth day today and is likely to fall for the fifth week in six weeks.

The Dow is down 2.4% since the start of the week. and is now close to this year’s lowest level set in June. The S&P 500 and Nasdaq were down 3 percent and 3.3 percent, respectively.

Steve Hanks, professor of economics at Johns Hopkins University, said there was an 80 percent chance the US economy would go into recession. If the Fed continues its balance sheet cuts (QT).

“The Fed has been fueling inflation by injecting massive amounts of money into the system since 2020, driving prices higher. because consumers are willing to pay more for their purchases.” said Mr. Hank

The CNBC survey found that analysts and fund managers had predicted a 52 percent chance that the US economy would enter a recession over the next 12 months.

The yield on the two-year US Treasury is sensitive to the Fed’s monetary policy. It jumped above 4.2 percent today, hitting a 15-year high and well above the 10-year and 30-year US Treasury yields.

Short-term bond yields rebounded higher than long-term. As a result, the US bond market has an inverted yield curve, which is a sign of recession.

The Fed has voted to raise the short term interest rate by 0.75% to 3.00-3.25 percent this session. He also noted that the Fed will continue to raise interest rates until it reaches 4.6% in 2023.

However, in its policy interest rate outlook (Dot Plot), Fed officials expect no rate cuts until 2024. causing the long-term interest rate to fall to 2.9%

Fed officials predict interest rates will reach 4.4 percent at the end of the year and 4.6 percent at the end of 2023, before slowing to 3.9 percent in 2024 and flat at 3.9 percent in 2025. The long-term interest rate is 2.5% .

The investors expect that the Fed will continue to raise interest rates in the two remaining meetings this year. After removing the signal from the Dot Plot and Fed Chairman Jerome Powell’s statements

said Mr Powell He will not consider a rate cut until he is confident that inflation figures are falling towards the Fed’s target of 2%.

In addition, Mr Powell warned that Carrying out the mission of controlling inflation can affect the expansion of the US economy and labor market.

Investors expect the Fed to raise interest rates by 0.75% at its monetary policy meeting in November. and increase another 0.50% in December if the Fed raises the interest rate as expected. This will lead to the Fed raising interest rates by 0.75% four times in a row at the June, July, September and November meetings. Meanwhile, the Fed’s policy rate will hit 4.25-4.50% by the end of the year. And it will keep the interest rate above 2.50%, the level the Fed considers neutral. neither too relaxed nor too strict

For a CNBC survey, Wall Street analysts predicted that the Fed will continue to raise interest rates until they reach their maximum level. and will maintain the interest rate at this level for some time The Fed will use a “hike and hold” interest rate measure instead of the previously anticipated “hike and cut” measure.

The results of the survey showed that Analysts expect the Fed to continue raising interest rates until it reaches 4.26 percent in March. The Fed is expected to keep interest rates at that level for almost 11 months, the average of analysts who expect the Fed to hold interest rates for three to two years.

In addition, analysts say there is a 52 percent chance that the US economy will face a recession over the next 12 months. Because the Fed’s use of monetary policy is too tight.

At the same time, analysts say the Fed will take several more years. Before it managed to manage inflation to its target of 2%, the Consumer Price Index (CPI) was expected on an annual basis. It will remain at 6.8% at the end of 2022 and 3.6% at the end of 2023, before falling to the Fed’s target of 2% in 2024.

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