This is especially the case with the Fed-induced jump in mortgage rates causing the housing market to crumble. In these circumstances, the last thing the economy needs is a further leg down in the stock market that would cause a further pullback in household spending. In total in the first half of this year, around $14 trillion of household financial wealth - 70% of GDP - has been erased by lower financial-market prices.Įven using the Fed’s lower-bound estimate of how a loss in wealth affects spending, the loss to date this year could have households paring back their consumption by as much as 2% of GDP.
Making matters worse, the bloodbath in equities has been accompanied by large bond-market losses and by the virtual collapse of the cryptocurrency market. Already in the first half of this year, around $9 trillion in equity wealth has been wiped out. The Fed would seem to be ignoring the negative wealth effect on the economy at its peril. It’s especially so when the Fed’s higher interest rates are already causing the price-to-earnings ratio to revert to mean.ĭemocrats, Republicans alike say US moving in wrong direction: poll The last thing the market now needs is a downgrade in the corporate-earnings outlook due to an impending recession.
This consideration is all the more important as the market’s price-to-earnings ratio remains considerably above its long-term average. Prices for many household goods have risen in recent months. The lower prospective earnings are, the lower the price investors will be prepared to pay for a share in those companies. That in turn might set us up for another leg down in the stock market.Īny prospect of a recession strikes the stock market by clouding the outlook for company earnings. Not only might a weakening economy adversely affect stock-market prices in a big way - falling stock prices might deal a body blow to the economy. It is also on the path to withdrawing market liquidity by as much as $95 billion a month this fall by not rolling over its maturing bond holdings.īefore inflicting unnecessary damage to the economy through slamming on its monetary-policy brakes too hard, the Fed might want to reflect on a doom loop that now is stalking the economy. Not only is the Fed raising its policy interest rate in 75 basis-point steps rather than the more normal 25. These market failures directly affect the business case for investing in blue hydrogen by reducing the expected return from projects. Hochul’s Micron deal exposes her blueprint for continued NY economic declineĪs the stock market closes out its worst half since 1970, the Federal Reserve has shifted to a hawkish monetary-policy stance to fight inflation. 5 things to watch when Warnock and Walker debate Friday. 8īiden says ‘my shotgun’ ready to ward off recession, calls Afghanistan ‘God-forsaken place’ NPR gets most of its funding from corporate sponsors, such as General Motors GM, -0.20 and Trader Joe’s, as well as dues paid by member stations across the country. American Public Medias Marketplace presents news on business, economics, and money for the rest.
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