The Federal Reserve (Fed) is no longer your friend: the judgment was issued in early 2022 by Jim Cramer, stock market guru, on the CNBC channel, as rising rates began to bring markets down. This time it was serious, and the US central bank would not intervene to save Wall Street as it had done since the crash of 1987. Nine months later, the Fed has no more friends. The rise in interest rates, from zero to more than 3% to curb inflation (8.3% in August), is hurting everyone.
Savers are seeing their portfolios melt (a third drop in the Nasdaq, rich in Tech companies, a quarter in the S&P 500, and 15% in Treasury bonds); households are experiencing the doubling of mortgage rates (over 7%) and are preparing for a real estate crash; Wall Street worries about a financial accident, such as the default of an over-indebted private investor; the partners of the United States suffer from the soaring dollar and can no longer finance themselves, like the United Kingdom.
In question, inflation, which has infiltrated all segments of the economy. Caught off guard, the Fed is trying to catch up and plans to raise rates to 4.25% by December. Too late, too strong, everyone is worried about a US recession, while growth has already been negative in the first two quarters. The boss of JPMorgan, Jamie Dimon, repeated, Monday, October 10, his fears combined with the war in Ukraine: “ These are very, very serious things that are likely to put the United States in some kind of recession in six to nine months’predicted Mr. Dimon.
Many are calling on the Fed to slow down. Lockdown finance star Cathie Wood, whose Ark fund saw its value halve by 3.5, wrote an open letter to the central bank noting that commodities, a leading indicator of the economy, were in strong decrease. She accuses the Fed of eventually fueling deflation. “Lower rates by 0.25%”, added, in mid-September, Elon Musk, boss of Tesla. Massachusetts Senator Elizabeth Warren, representative of the left wing of the Democratic Party, denounces the coming recession.
“Recession is not the solution”
“The Chairman of the Fed, [Jerome] Powell, seems determined to push the economy over the edge, even after admitting that rate hikes won’t lower key prices, judge Mme Warren, who never attributes the return of inflation to the various fiscal stimulus plans. Destroying jobs and crushing the wages of millions of workers is reckless and dangerous. Recession is not the solution to inflation. » Outside the United States, the High Representative of the European Union for Foreign Affairs, Josep Borrell, was indignant, on October 10, at a dominance of the Fed comparable to that of the Bundesbank, the German central bank, in Europe at the time of the deutschemark.
You have 41.71% of this article left to read. The following is for subscribers only.