Stocks Tumble Amid Fears Of Inflation-Fueled Recession

U.S. stocks were crushed Monday, reaching a 13-month low, as markets continued to absorb a blow from the Federal Reserve’s decision to hike interest rates by a half-percentage point last week in a bid to tame accelerating inflation.

The leading stock indices all showed losses across the board and reached session lows near the end of the trading day.

The Dow Jones Industrial Average lost 653.67 (2%) as the others hit 2022 lows.

The S&P 500 fell 132.10 (3.2%) and closed at 3,991.24. The index has posted its worst three days since March 2020.

The Nasdaq Composite lost 521.41 (4.3%).

Last Wednesday, the Fed announced it would raise interest rates by a half-percentage point in the largest rate hike in 22 years. After making the decision, Fed Chairman Jerome Powell said the central bank was determined to act with the tools available to it for bringing down inflation faster.

Markets as well as the Fed have been wary about how these efforts could push the economy into a recession. In the weeks leading up to the rate hike, analysts forecast that the likelihood was high that the Fed would launch a larger rate increase, but they warned that it could move the economy closer to a recession within the year.

Powell acknowledged that the road ahead was filled with recessionary risks and that there were variables beyond the Fed's ability to control.

“It’s not going to be easy. And it may well depend, of course, on events that are not under our control," said Powell at a press conference last Wednesday.

For the last two years, the battle with COVID-19 has dominated the financial landscape as the single largest threat to profits. But now markets are being hammered by supply chain disruptions from the war in Ukraine and factory shutdowns in China as the economy grapples with containing new COVID outbreaks.

Neel Kashkari, president of the Minneapolis Federal Reserve, pointed to the imbalances in supply and demand caused by the pandemic, the war and supply chain problems from each as the primary factors holding down the U.S. economy.

“I’m confident we are going to get inflation back down to our 2% target,” Kashkari told CNBC on Monday, referring to the Fed's inflation benchmark. "But I am not yet confident on how much of that burden we’re going to have to carry vs. getting help from the supply side.”