As stocks fall, economic fears mount, along with inflation

But in April, Fed officials began to change their mind, expressed in speeches and other public comments, about how quickly interest rates need to rise to control inflation, and Wall Street’s economic projections also shifted. In the futures market, where traders bet on how high interest rates could go, the prevailing view now is that the Fed’s benchmark will rise to around 2 percent in July — something that seemed unimaginable even a month ago.

For that to happen, the central bank would have to raise its key rate by half a percentage point at each of its next three meetings, and fears are that such aggressive hikes will cause an economic slump, rather than cool things down enough for that to happen. slow inflation but grow the economy.

“Every time the Fed has spoken, the markets have judged it quite negatively,” said Saira Malik, chief investment officer at Nuveen, a global investment manager. “Investors are concerned that with these multiple rate hikes, the Fed will cause a recession rather than a soft landing.”

Higher interest rates will hit consumer demand. Mortgage rates, for example, have already risen above 5 percent, from 3.2 percent at the start of the year, swallowing the budgets of new home buyers. Other borrowing costs, from consumer loans to corporate debt, will rise as the Fed raises its benchmark rate.

For now, many companies — from United Airlines to PepsiCo — are relaying rising costs and reporting that sales continue to rise.

Economists wonder how long this will last.

“There will be a natural slowdown in spending, perhaps before interest rates rise, as costs rise,” said Jean Boivin, head of the BlackRock Investment Institute. “The central bank will have to watch that very closely because if it happens naturally and you add interest rate hikes, you end up with a recession scenario.”

Overall, this week’s earnings reports show earnings growth to continue. About 80 percent of companies in the S&P 500 reporting results through Thursday have performed better than expected, data from FactSet shows.

But other companies have only added to the downdraft. Netflix collapsed after it said last week it would lose subscribers — 200,000 in the first three months of the year and another two million in the current quarter. The stock is down more than 46 percent this month.

On Friday, Amazon fell 12 percent a day after the e-commerce giant reported its first quarterly loss since 2015, citing rising fuel and labor costs and warning that sales would slow. The stock has fallen 22 percent this month.

General Electric warned Tuesday that the economic fallout from Russia’s invasion of Ukraine would weigh on the results. Shares fell 10 percent that day and are down about 16 percent this month.

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