The u.s stock market ended its worst Week since march 2020 the beginning of The pandemic on friday the numbers were Mixed the dow jones slipped about 40 Points while the nasdaq gained more than 150 points and the s p 500 rose just Over eight points for the day That index fell nearly six percent for The week recording its single largest Drop in more than two years all three Finished the week with sharp losses Investors are worried the federal Reserve's aggressive interest rate hikes To control a 40-year high inflation rate Could tip the economy into a recession For more i'm joined by john quelch he's The dean of miami herbert business School at the university of miami thanks For being with us It's been an extremely volatile week for The marcus to say the least have we hit The bottom I think most people would Estimate that we have not yet hit the Bottom Remember that we have given up the gains That were made since the end of 2021 So it's not as though Investors are losing money that they Held in their 401 case pre-pandemic What we have here is a big division of Opinion between those who think the fed Strategy will work that the fed will Tame inflation and that interest rates
Will be held within the boundaries that The fed is forecasting but there's Another school of thought that says that Uh the fed is still late to the game That there's a lot of inflation in the Pipeline and that much bolder measures Will be needed And the higher the interest rates joe Catherine of course that means costs of Borrowing to business go up and the Attractiveness of investments and Therefore the value of stocks goes down Well that's right so what is it going to Take and how long to tame inflation Well the fed has split the difference Between The doves who were arguing for 50 basis Points and the hawks who are arguing for A hundred so they've taken the path of Saying 75 basis points but more Importantly they've indicated that the Next round of uh announcement is likely To include another 75 basis points and Then they're hoping to revert to 25 Basis point uh in other words quarter Point increases thereafter um the Question is whether or not that will be Enough to tame the beast But The good thing about it is that they Have made this forecast and so in a Sense that forecast for additional Interest rates is already baked into the Stock market valuation
Well let's talk a little bit about the Timing in the timeline here could the Midterm elections be a turning point for The markets Well Usually the midterm elections have uh Some bearing on uh the markets and in The second uh Half of a first term uh there's usually Not a good result for investors But you know those uh connections Between politics and economics are Pretty uh uneven and uh not well Established and so i'm not so sure that That's necessarily going to have a big Impact if for example however the Republicans were to gain the house That would pretty much put A big blanket on top of Additional spending programs that the Current administration might wish to Push through And That would probably be well received by The stock market You mentioned the fed is aggressively Raising rates and as you know aggressive Moves in the markets can have unexpected Consequences What explains in your view this previous Lack of action by the fed Well the fed Took a long time to Determine that the inflation that it was
Witnessing was not temporary or Transitional and there were many Economists who Called out the fed A year and a half or more ago with Respect to the inflation trend that they Saw In the numbers and they saw growing in Strength and it's unfortunate that the Fed is now having to play catch-up But of course the fed does desperately Want to avoid a recession and they're Almost more interested in doing that or Have been up to now than in in than they Have been in curtailing inflation but Now that inflation has got out of Control There's no question that they have to Get that in shape And it's going to take Several additional interest rate moves In my opinion uh before we see three or Four consecutive months of lower Inflation rates in other words in rates That are below the 8.6 That we saw most recently and that Brings me to the final question what are The indicators that tell you a recession May be avoidable here I think the most important Attribute of the u.s economy versus Other economies Is that the u.s has a tremendous Reservoir of innovation capacity and an
Appetite for innovation And while we are seeing obviously the Tech sector Hit extremely hard in the current Downturn uh and stock prices the fact is That the tech sector and growth in That sector is likely to play a big part In the emergence of the u.s from any Risk of recession John quelch thank you Thank you
