JACKSONVILLE, Fla. – U.S. stocks sank into bear market territory Monday as Wall Street investors worry about interest rate hikes and inflation.
The S&P 500 is more than 20% below its record set early this year.
According to one expert who spoke with News4JAX, the market usually drops 30% during a recession so he thinks it will be at least until 2023 before the country will be in a recession.
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“But it’s not as bad as everybody thinks here, you know,” said Joe Krier, partner at IIWII Trading. “And the reason that we’re likely to head into recession is because right now we have the opposite of recession, we have growth that’s a little bit out of control.”
Krier said the actual definition of a recession is just two quarters of shrinking U.S. growth. He said the country could still be growing but just growing at a slower rate.
He explained how the economy got so fragile.
“It’s built up because we had COVID. And we had relief packages by both the Trump administration and the Biden administration,” he said. “And that put a lot of cash into people’s hands. And then all of a sudden, the economy starts heating up, and everybody’s got cabin fever on top of that, so they want to go spend that money. And that’s where we’re seeing some runaway inflation now.”
Krier said because people keep spending the Federal Reserve will do things to try to slow the economy down to stop people from spending.
“And their primary tool to slow things down is to raise interest rates, which they’ll do tomorrow, and Wednesday. And so the fear is that when they raise rates, they’ll raise them too far,” he said. “But what happens is, it’s harder for companies to do business when interest rates are higher, so their profits shrink, and their stocks go down.”
Some economists are speculating the Fed on Wednesday may raise its key rate by three-quarters of a percentage point. That’s triple the usual amount and something the Fed hasn’t done since 1994.
Krier said it could be as far out as 2023 before a recession hits, because consumers are so flush with cash right now.