WASHINGTON (Parliament Politics Magazine) – Concerns over the impact of measures to combat inflation on economic growth have caused US stocks to experience the worst first half of a year since 1970.
The benchmark S&P 500 index dropped 20.6 percent during the past six months, and other significant US indexes also experienced significant declines.
Stocks have also experienced major losses in the UK, Asia and mainland Europe.
It occurs at a time when central banks around the world are attempting to control rising living expenses, with prices of basic necessities like food and fuel rising.
As interest rates continue to climb, some experts predict that the US, which is the largest economy in the world, may enter a recession as soon as this year.
Chief economist at Hang Seng Bank China, Dan Wang, told the BBC that the stock market would respond unfavourably if the US Federal Reserve kept raising interest rates.
Shares were expected to see continued short-term volatility, said Shane Oliver of AMP Capital, as central banks keep tightening to fight high inflation, the ongoing Ukraine war, and fears of recession remain high.
The Dow Jones Industrial Average, another important US stock index, saw a decline of over 15% in the first half of the current year, the largest decline since 1962.
The technology-focused Nasdaq Composite suffered a loss of about 30% at the same time, which was the greatest percentage decline in the first half of the year.
Outside of the US, prominent stock market indices have also sharply declined this year.
The Stoxx 600 index of Europe has collapsed by about 17%, the MSCI index of Asia-Pacific markets has seen a fall of over 18%, and the UK’s FTSE 250 has fallen by over 20%.
It happens at a time when several of the biggest central banks in the world are taking measures to slow the rise in living costs, including increasing interest rates.
The heads of three of the biggest central banks in the world earlier this week issued a warning that the time of moderate inflation and lower interest rates was coming to an end.
The leaders of the Bank of England, European Central Bank and US Federal Reserve stated that immediate action is needed to prevent price hikes from getting out of control during their annual conference in Portugal.
They did caution though, that attempts to contain an inflation shock brought on by the pandemic and the Ukraine war might seriously harm global economic growth.
Did they run the risk of going too far? No doubt they did, but he didn’t think it was the largest risk to the economy, Jerome Powell, the Fed chairman, said.
He continued, failing to restore pricing stability would be the worst mistake to make.
The Fed increased interest rates last month, marking the largest increase in about 30 years, as it intensified its campaign to contain rising consumer prices.
Additionally, the Bank of England increased its benchmark interest rate from 1 percent to 1.25 percent, the highest level in 13 years.
