Deceleration required
All of this comes at a bad time for companies, which are facing slumping profit margins, even though stock prices are below multi-year highs, and may fall further following the S&P index doubled from its pandemic bottom. Even with the nominal yields of Treasury bonds reaching their highest level in more than a decade, inflation-adjusted interest rates have room for further upside.
Read also: Fears of monetary tightening and global recession plunge US stocks
Jerome Powell and his colleagues at the Federal Reserve will not be alarmed by the sharp decline in asset prices, having spent the past six months timidly and then outright saying that inflation can only fall as the jumps in financial markets slow. Monetary tightening In March, 10-year bond yields jumped more than 1.5%, stocks fell 20%, and non-investment graded bonds widened margins by nearly 90 basis points, with the potential for further suffering.
“The Fed’s message is to keep going until something goes wrong,” says George Birx, global economic strategist at the Bespoke Investment Group. “If that’s the Fed’s direction, how are the markets supposed to go down?” he asks.
