On Wednesday, the S&P 500 stock index jumped 3 percent, as though all was right with the world. On Thursday, stocks collapsed, with the tech-heavy Nasdaq index plunging 5 percent as though the end of times was in sight.
Things on Friday were only slightly better. The S&P fell again, but only by 0.6 percent, and the Nasdaq lost a mere 1.4 percent. It was the fifth consecutive weekly decline in the S&P 500, its longest streak of losses since June 2011.
If you are looking for patterns in the market’s wild swings, the answer is simple: The financial markets are coming to grips with a stunning policy change by the Federal Reserve.
Over the last two decades, financial markets may have become so accustomed to encouragement from the Fed that they just don’t know how to react, now that the central bank is doing its best to slow down the economy.
news conference on Wednesday that the central bank was really and truly committed to driving down inflation. A transcript of Mr. Powell’s words is available on the Fed site. So is the text of the Fed’s latest policy statement. Check for yourself.
The Fed is willing to increase unemployment in the United States if that is what’s required to get the job done. And while they would much prefer that the United States doesn’t fall into a recession, Fed policymakers are willing to take the heat if the economy falters.
This may be hard to accept, and for a good reason.
millions of casualties worldwide, and it’s not over. From the narrow viewpoint of economics, the pandemic threw supply and demand for a vast variety of goods and services out of whack, and that has baffled policymakers. How much of the current bout of inflation has been caused by Covid, and what can the Fed possibly do about it?