The Stock Market is Saying Recession is Imminent, What Does the Fed Say?

The Federal Reserve, led by Jerome Powell, has taken a more aggressive posture towards inflation, raising the target Federal Funds rate .75% yesterday afternoon. This is signaling that the Fed may be taking the “by any means necessary” approach to solving the inflation problem. Some experts believe this is too aggressive and may trigger a recession, while others believe it may not be enough. In response, the stock market has continued declining on worries that an economic recession is on the horizon or may possibly have already begun.

By definition, a recession is two consecutive quarters of negative GDP. GDP, or Gross Domestic Product, is reported quarterly and is considered the best measure for the overall health of our economy. It measures the value of final goods and services of the economy. The first quarter GPD declined 1.4%, so all we need is for the second quarter to be negative and we are “officially” in an economic recession.

Why is the stock market declining on worries of a recession? Recessions typically impact corporate earnings and ultimately jobs and wages. The stock market/investors are in the business of trying to predict the earnings of a corporation (stock) in the future, so if the value of a company is declining in the market, it often means that investors feel that future earnings will be lower or grow slower than expected. This is exactly what is happening right now. If we do enter a recession, corporate earnings could be impacted; and therefore, all the headlines and discussion right now are centered around whether the economy is or will be in a recession soon.

We discuss what this means in this week’s video. As always, if you have any questions, we are here to be of help.

We look forward to hearing from you.