Wall Street stocks stable, but risks of recession increase

The US benchmark index S&P 500 rose from 3.929 to 3.978 on Wednesday 25 May and the American technology index Nasdaq from 11.225 to 11.434 points. These are pleasing values after the miserable start of the stock markets into the new year 2022.

What breathed some stability back into the market were the statements by the US Federal Reserve. The minutes of the last meeting of the most powerful central bankers have just been published. The Fed is clearly on course to get the persistently high inflation under control.

At the beginning of May, the Fed raised the key interest rate by 50 basis points and also clearly indicated that similarly strong interest rate steps are to be expected in the next two months if inflation does not fall.

Inflation in the US fell very slightly in April but is still at a historically high level of 8.3% year-on-year. In the previous month it was 8.5%. Petrol and energy prices are at an unprecedented high.

The situation is similarly drastic in the UK and Germany.

The just released FED meeting notes show that not only the current rate hikes were discussed, but also a possible rate hike of 125 basis points in 2023 with a target rate of 3.13%. These values exceed the interest rate increases expected by the market. On the other hand, bankers are naturally concerned about the impact of such rate hikes on the labour market. If companies have to invest more money to service their loans, there will be less left over to pay employees, resulting in fewer jobs.

Central Bank President David Malpass has made the point the situation in Ukraine and its impact on food and energy prices, as well as the availability of fertiliser, could trigger a global recession.

Central bankers are operating in a very difficult environment of tension.