The Dow (INDU) sank 750 points, or 2.4 percent, and the Nasdaq 3.7 percent.
The broader S&P 500 fell 3.2%. This index is now more than 20% below its all-time high set in January, putting the stock in a bear market.
Shares briefly fell in a bear market on May 20, although a late-day rally saved the market from closing below that threshold for the first time since the first days of the pandemic in the spring of 2020. Fears of inflation and recession eased in late May and stocks they regained some positions. But a meager report on the consumer price index on Friday showed that inflation in the United States was significantly higher than economists expected last month, which could hamper the Federal Reserve’s efforts to control inflation.
After raising interest rates by half a point in May – a move the Fed has not taken since 2000 – President Jerome Powell promised more than that until the central bank made sure inflation was under control. At this point, the Fed will resume standard increases by a quarter, he said.
But after May’s hotter-than-expected inflation report, Wall Street is increasingly calling for tougher action from the Fed to keep prices under control. Jeffries joined Barclays on Monday, predicting that the Federal Reserve would raise interest rates by three-quarters of a percentage point, an action the Fed has not taken since 1994.
“After holding their breath for nearly a week in anticipation of the US Consumer Price Index report for May, investors were exhausted as inflation rose above expectations,” said Sam Stoval, CFRA’s chief investment strategist, in a note. to customers on Monday morning.
Stoval said the risk of larger increases was pulling markets down on Monday.
Investors fear two outcomes, neither of which is good: higher interest rates mean higher business borrowing costs, which could hurt the end result. And the Fed’s overzealous actions could inadvertently plunge the US economy into recession, especially if businesses start cutting workers and the hot housing market falls apart.
There are no signs that the labor market and housing are in danger of collapsing, although both are cooling somewhat.
In an interview with CNN’s Farid Zakaria on Sunday, former Fed chairman Ben Bernanke said a recession in the United States remains possible. But Bernanke said he believed Powell and the Fed could achieve the so-called soft landing, an elusive result in which the central bank could cool the economy to control inflation without slowing it down so much that it would enter a recession.
“Economists are very bad at predicting recessions, but I think the Fed has a decent chance – a reasonable chance – to achieve what Powell calls a ‘soft landing,’ or no recession, or a very mild recession to reduce inflation.” said Bernanke.
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