US stocks sharply declined for the second consecutive week, as aggressive moves by Central Banks have increased investors’ recession concerns. The S&P 500 declined by 4.6% and the Dow was lower by 4.0% for the week. Foreign markets also declined sharply with the FTSE All World Ex US down 5.1% for the week. US crude fell to $78.74 to end the week, down from $85.11 the week prior. The yield on the 10-year Treasury ended the week at 3.70%, its highest level since 2009, up from 3.45% the week prior.
Fed officials voted unanimously to increase the federal-funds rate by 0.75% to a range between 3% and 3.25% and signaled additional large increases were likely even though they are raising the risk of a recession. New projections show the rate rising to between 4% and 4.5% by the end of the year, which would call for sizable rate increases at the November and December meetings. Fed Chairman Jerome Powell said, “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t”.
The U.S. housing market slowed for a seventh straight month in August, as higher mortgage rates continued to weaken buyer demand.
The Bank of England raised its key interest rate by 0.5% to 2.25% marking the seventh consecutive increase. A few members of the Bank of England’s monetary policy committee voted for a larger 0.75% increase while one voted for a smaller 0.25% rate rise. The split vote highlights the competing concerns of historically high inflation and pushing the economy into a recession.
Many Central Banks around the world increased their benchmark rates, some by larger-than-expected margins, to combat the effects of rising inflation. Sweden raised rates by a larger-than-expected 1% to 1.75%. Norway raised its benchmark rate by 50 basis points to 2.25%. The Swiss National Bank (SNB) raised its policy rate by 0.75% from negative 0.25% to 0.5%.
The U.K. government announced the country’s largest tax cuts since the early 1970s, as well as an increase in spending on subsidies to cope with a surge in energy prices.