The Fed Risks A Recession To End Inflation, As Expected
Published Friday, August 26, 2022 at: 7:22 PM EDT
At an economic policy symposium sponsored by the Federal Reserve Bank of Kansas City in Jackson Hole, Wyoming, Federal Reserve Chairman Jerome Powell said on Friday that the Federal Reserve would slow the economy to fight inflation and that it would cause “some pain” in the economy.
The top of The Wall Street Journal’s website Friday evening heralded news of a 1,000-point plunge in the Dow Jones Industrial Average of 60 stocks. The Fed chair’s remarks were bumped from the top story slot of The New York Times and The Washington Post but were page-one news.
The Fed chairman’s remarks and stock market plunge should not be a surprise if you’ve been reading our weekly updates. The Fed has little choice but to tighten monetary policy even if it causes a recession if the burst of inflation experienced post-Covid 19 is to be snuffed out.
The Fed knows from history – specifically, from the Great Inflation of 1965 to 1982, that it has little choice but to risk causing a recession. During the 17-year stretch of inflation that peaked 40 years ago, policymakers learned that inflation could not be trifled with, and it would be ended only after the then-Fed-chair, Paul Volcker, imposed tight monetary policy, knowing it would cause a recession, which lasted 17-months, from July 1981–November 1982.
The Fed chair’s remarks and stock market reaction are no surprise to those who know details of financial economic events 40 years ago.
The Standard & Poor’s 500 stock index closed this Friday at 4,057.66. The index lost -3.4% from Thursday and -4.12% from last week. The index is up +57.83% from the March 23, 2020, bear market low and down -16.7% from its January 3rd all-time high.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market-value weighted index with each stock's weight proportionate to its market value. Index returns do not include fees or expenses. Investing involves risk, including the loss of principal, and past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.
Nothing contained herein is to be considered a solicitation, research material, an investment recommendation, or advice of any kind, and it is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Tax advice always depends on your particular personal situation and preferences. You should consult the appropriate financial professional regarding your specific circumstances. The material represents an assessment of financial, economic and tax law at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete, and is not intended to be used as a primary basis for investment decisions. This article was written by a professional financial journalist for Advisor Products and is not intended as legal or investment advice.
- Ending Inflation Will Take Months
- Economists Predict Lackluster 4Q22 Growth; Fed Algorithm Predicts 4.3%
- Amid Darkening News, Positive Economic Signs
- Stocks Soared This Past Week But Economic Pain Is Still Ahead
- Factors Blurring The Likelihood Of A Recession
- Weekly Investor Update
- Stocks Rose 4.7% This Past Week, Amid A Bear Market
- 105 Years Ago In Investing: Conditions Were Much The Same As Today
- A Timely Reminder Of Why You Take Stock Risk
- Good And Bad Financial News: Weekly Investment Update
- A Financial And Tax Planning Strategy For This Week's Stock Market Plunge
- Having Trouble Tuning Out The Bad Financial Economic News?
- A Key Signal Of Strength At A Pivotal Moment In Economic History
- Despite Strong Jobs Report, Stocks Declined Last Week
- The Fed Risks A Recession To End Inflation, As Expected
- Stocks Snap Four-Week Win Streak
- Stocks Have Soared Lately, But What Should You Expect Near And Long-Term?
- Investing In An Economy Beset By Multiple Anomalies
- Despite Bad Economic News, Stocks Rose 4% In The Week Ended July 29, 2022
- Amid Bad Data Releases, Leading Economists Predict No Recession
- Good News: Real Retail Sales Dropped Fractionally In The Past Year
- Financial Economic News Analysis
- The Good News Is All This Bad News
- Four Signs A Recession Could Be Short And Shallow