ONLINE FOREX BROKER
2022-06-23 • Updated
The last time the US Federal Reserve raised interest rates by 75 basis points, there was a Democratic president in his second year in office, and the stock market had just enjoyed two booming years of solid gains. It's not much different than now, except that in 1994, there were no growing fears of a recession, and there was no terrifying, uncontrollable inflation.
In November 1994, Alan Greenspan, the-then Fed's chairman, announced a rate hike after leaving rates unchanged throughout 1993 to fight rising inflation before accelerating. From 3.25% in January 1994, rates rose all year long, even jumping 75 basis points in November. The increase was part of a series of rate hikes by seven times over 13-months between early 1994 and early 1995 to keep the economy from overheating.
In 1994, this move was confusing to the markets, especially to the Clinton White House. Inflation was at its lowest level in 20 years, 2.7%. But with the US stocks booming strongly, the Fed felt the first degree of heat in the economy and feared rising inflation. So the hawkish Fed chose to raise rates preemptively, to the point that critics of the move said it did not allow the economy to flourish. The Fed may have cut the road off a larger economic boom in the bud.
In 2022, Jerome Powell, the current Fed's chairman, finds himself in a very different situation. He is trying to fight the fires already burning throughout the US economy. Inflation has reached 8.6%, its highest level in 40 years. There are now concerns that prices will take longer than expected to calm, even with the Fed raising rates aggressively. Let's not forget the sharp collapse in the US stock market, entering a bear market after declining by more than 22% during the year. Fears of a recession are also growing.
Everyone now fears that the Fed will hit the brakes too hard and too quickly to tame inflation, but it will halt the economy. Powell wants a soft landing for inflation, as Greenspan did in 1994. But it looks like he will get a hard landing.
Back days, economists believed that Greenspan's tightening drove the US into a soft landing, calming markets and inflation while avoiding the recession that often comes from sharp and sudden increases in rates. Today, there is a big difference from the successful "soft landing" of 1994-1995, which is where the Fed currently stands.
Unlike the Fed in 1994, which was one step ahead of inflation, the Fed should have started raising rates gradually in early 2021 with the early signs of inflation. However, it had continued stimulating the economy with 0% interest rates, ongoing monthly bond purchasing, and pumping trillions of cheap dollars into the markets rather than withdrawing them and starting to tighten before it was too late.
Markets are now concerned that the Fed's aggressive approach to inflation could push the economy into recession. In 1994, stock losses were minimal during the year (down only 1.2%), and the Fed managed to avoid a recession and cool inflation. The Dow Jones rose more than 33% in 1995. In 2022, stocks are down more than 22% so far. The Dow Jones fell below the key 30,000 level after raising rates by 75 points last week.
The S&P 500 had a good week due to the impressive start of Q1 earnings and favorable inflation data. In March, the consumer price index rose 5%, lower than the previous month's 6%, and met economists' expectations.
The previous year 2022, was undoubtedly tumultuous for the stock markets, with several stocks plummeting across multiple industries. Analysts have blamed the hard times on inflation, hawkish federal reserve policies, an impending global recession, and the ongoing crisis in Ukraine. This year, however, we're beginning to see some recovery in the stock markets. This article will find a few stocks worth buying this year.
In a call scheduled for January 25, 00:30 am GMT+2, Microsoft will publish the company's earnings for the final quarter of 2022 and comment on the results, projections, and outlook for the nearest future of the company.
Let's dive into the world of gold. Currently, the price of gold, represented by XAUUSD, is stuck in indecision, hovering around the $1,975 mark. The market is anxiously awaiting two important factors: the release of the Federal Reserve's meeting minutes and the extension of the US debt ceiling.
Hey guys, this is the last full trading week in May, and many forward-looking individuals like myself are already preparing themselves to seize whatever opportunities June may have in store. On this note, I will review a few commodities that have satisfied my quest for swing-trading opportunities in the coming month. Follow me!
The Bank of England (BoE) has dramatically shifted its economic forecasts. They no longer expect a recession in the UK and have upgraded their growth projections. This year, the BoE predicts GDP growth of +0.25%, a significant improvement from previous expectations. Next year's forecast is even more optimistic, with a projected growth of 0.75%.
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