"Inflation is going to be higher for a longer period of time," says Gargi Chaudhuri, head of iShares investment strategy at BlackRock. Some believe that will be necessary to deal with higher inflation going forward too.
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This year's dramatic rate increases are a reflection of the Fed playing catch-up, but some fear that it also signals the start of a new era of higher interest rates after over a decade of easy monetary policy. "I think I was wrong then about the path that inflation would take," she told CNN. A few weeks ago, Yellen admitted she had misread the moment. Now we know that they were both underestimating the path of inflation and were slow to act. emerging from the darkest days of the pandemic. Those expectations were also dramatically different from last year, when both Fed Chair Jerome Powell and Treasury Secretary Janet Yellen seemed confident inflation was going to fade - that it would be a short-lived consequence of the U.S. kept surpassing expectations." The Fed first underestimated inflation and is now playing catch-up Yung-Yu Ma, the chief investment strategist at BMO Wealth Management, says it has been a "very fast-moving environment, where inflation continued to surprise to the upside, and the Fed's own projections of how quickly it was going to raise interest rates. economy into a recession.Įconomy The Fed delivers biggest interest rate hike in decades to combat surging inflation "It changes the math of buying a car, buying a house, buying a bond, and it changes the value of particularly tech stocks, whose earnings are far off in the future."Īnd that means that all that whipsawing on Wall Street of the last few months - including the massive single-day swings of more than 1,000 points - reflects real nervousness among investors. "When interest rates go up, it changes all the math," says Charles Bobrinskoy, vice chairman of Ariel Investments. Both indexes are in bear market territory, and the Dow Jones Industrial Average is in a correction. With the Federal Reserve aggressively hiking interest rates to fight high inflation, the economic landscape has changed dramatically.Īt the halfway point of the year, the tech-heavy Nasdaq has fallen by 30% and the broad-based S&P 500 is down by over 20%. This has been the worst start to a year for stocks in more than half a century.Ī record-setting run fueled by cheap money has ended, and Wall Street is having a hard time adjusting to a new reality.
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