(WWLP) – Turmoil for the American economy continues as major stock markets attempt to recover from a fifth straight day of losses and inflation continues to soar.
As of Wednesday, the Federal Reserve is expected to take their most drastic measures in decades to try and slow the rate of inflation.
The FED is expected to raise interest rates by three-quarters of one-percent that’s the largest one-time hike since 1994.
Officials will wrap up a two-day meeting session Wednesday morning and likely announce their path forward later Wednesday.
The meeting was in response to the latest inflation report, which indicated the consumer price index continues to climb and likely has not hit its peak. The hope is to increase the cost of borrowing money, slowing down economic growth and allowing prices of goods to return to normal. However, putting rates too high can cause a recession.
“Bear Market” territory
Stocks are down over the last week in response to the anticipated hike in rates Wednesday. The S&P 500 fell 10-percent in the last five days and 22-percent since this time last year. That officially lands the index in “Bear Market” territory – but what exactly does that mean?
A bear market refers to when equity markets are down 20-percent or more from their most recent all-time high. Since World War Two, it has happened 14 times. Bear markets have a variety of causes and consequences. This one, largely caused by rising prices for food, oil and housing.
22News asked financial advisor Mark Teed about the consequences, “when the market reprices itself down 20 percent, it usually tells us there’s either a recession coming or that the market was too enthusiastic or something like that. And I think right now we’re on the verge of whether we’re in a recession or not.”
The best way to battle a bear market is to use patience and wait it out. Although it can typically take a while, the average bear market lasts 359 days.
What is recession?
What does a recession mean among the hike in interest rates and the state of financial markets? A recession refers to a significant decline in general economic activity lasting more than a few months.
Typically, they are caused by a reduction in purchases goods by consumers and businesses and can cause limited supply of goods and increased unemployment. There have been five recessions in the U.S. since 1980. The most recent was the shortest in history, from February to April of 2020.
There are no official qualifications for a recession to turn into a depression, it is a severe decline in economic output that lasts for several years.