The S&P 500 Index falls victim to the Fed’s policy in its battle against a high inflation rate
- The Federal Reserve increased the interest rates by 25 in their last meeting.
- The inflation rate is still high.
- The S&P 500 Index suffers as investors’ doubts about the Fed’s policy efficiency grow.
Since the Fed wasn't making much progress toward its goal, the hot topic got even hotter over time. The Federal Reserve raised the interest rate by 25 basis points in the last Fed meeting to reach the highest level of 3.25 since 2008, up from 3.00. Therefore, the increasing interest rates will increase the cost of long-term loans all across the economy.
Additionally, according to a May press release, the Federal Reserve is slated to gradually reduce its holdings of government debt and mortgage-backed securities, which started on the first of June, as another way to combat inflation.
On previous occasions, Powell said,
“Inflation has persisted longer than we thought, and of course, we’re prepared to use our tools to ensure that higher inflation does not become entrenched.”
None of us is immune to inflation’s effects on our wallets. The economy and individuals’ financial situations are both negatively affected. Charlie Munger, an American billionaire investor, made an early appearance in this year’s Yahoo interview. Pointed to inflation as the
“The greatest long-range danger a society can face, aside from nuclear war,”
Inflation has a negative influence on all economic sectors, which exacerbates the crisis.
Despite the Fed's efforts to lower inflation, the annual inflation rate in the United States was 8.3% for the 12 months ending in August 2022, according to data released by the U.S. Department of Labor on September 13.
In the meantime, countries try to keep inflation at 2%, which is a healthy level for the economy and helps it grow and stay stable. However, if the rate exceeds the desired 2%, it sends a negative message about the economy, reduces people’s ability to save money, and forces them to take on additional debt.