The Dow Jones Industrial Average and S&P 500 futures were in the red during early trading on June 22 ahead of Federal Reserve Chairman Jerome Powell’s congressional testimony.
Dow Jones Industrial Average futures were trading at 30,167 as of 8:06 a.m. Eastern time on June 22, down over 300 points after opening at 30,495. Meanwhile, the S&P 500 was trading at 3,717, down about 47 points from its opening of 3,764.
As of June 21, the Dow Jones Industrial Average has lost over 16 percent of its value year-to-date while the S&P 500 index is trading lower by over 21 percent.
The decline in index futures came ahead of Powell’s semi-annual congressional testimony before the Senate Banking Committee on June 22 and the House Financial Services Committee on June 23.
The Fed raised its benchmark interest rate by 75 basis points on June 15, the biggest such increase since 1994. The decision was motivated by the aim of bringing down inflation, which is already at 40-year highs.
The central bank published its monetary policy report on June 17, in which it pledged an “unconditional” commitment to restoring price stability. This has triggered worries among investors as to how far the Fed is willing to go to combat inflation.
“Friday’s monetary policy report argues that price stability is ‘necessary for sustaining a strong labor market,’ which is true enough in the long run,” Wrightson ICAP chief economist Lou Crandall said in a note on June 20, according to Politico.
“However, the Fed always faces difficult questions about timing and about the amount of economic damage that it will have to accept. How the [Federal Open Market Committee] will balance those considerations over the course of this cycle is uncertain.”
Global stocks also declined on June 22, with MSCI’s broadest index of Asia–Pacific shares outside Japan falling by 2.3 percent overnight to close at its lowest level in five weeks. Tech firms listed in Hong Kong fell more than 4 percent. Things were a bit more stable in Tokyo as the Nikkei exchange limited its losses to just 0.4 percent.
Recession on the Horizon
Investors are continuing to assess how central banks across the world might potentially push the global economy into a recession by hiking interest rates in a bid to contain inflation. Goldman Sachs officials said they believe a recession is coming for the U.S. economy and that the risks of such a recession are “higher and more front-loaded,” according to CNBC.
“The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply,” the firm said in a note.
A Wall Street Journal survey of economists in June put the chance of a recession occurring within the next 12 months at 44 percent, a massive jump from 18 percent in January. Such predictions have mostly occurred during times of imminent economic downturn.
For instance, 38 percent of economists had predicted a recession in December 2007, just days before the economic downturn began and continued through the summer of 2009.