Are interest rates going to keep increasing? According to Federal Reserve Chair Jerome Powell, the answer may be yes. In a recent speech before the Economic Club of New York, Powell discussed several important matters pertaining to the economy. One thing he made clear is that inflation isn’t easing quickly enough.
While Powell noted that progress on slowing inflation has been steady, he also hinted that further interest rate hikes are possible if the economy remains hot or a tight labor market stops easing. That suggests a stock market crash could be in the cards.
As a result, the Dow Jones Industrial Average, the Nasdaq Composite and the S&P 500 have all slipped today. While the news from Powell hasn’t been all bad, it is likely to generate more uncertainty as investors consider how to proceed amid complicated economic times. This is troubling for investors because, if there’s one thing Wall Street hates, it’s uncertainty.
Is the Next Stock Market Crash Coming?
The likelihood of another stock market crash is currently one of the most hotly debated topics among economists and investors. Investment firm Smead Capital Management recently informed investors that it believes the current economy is approaching a scenario similar to the “Tulip Mania” of 1636.
Now, Powell’s remarks have given investors even more cause for concern as uncertainty continues to rise. However, nothing is set in stone yet. As Yahoo Finance reports:
“Powell made it clear Thursday the central bank is closely watching a recent surge in long-term bond yields, which have risen more than 50 basis points since the Fed’s last policy meeting on Sept. 20. Other Fed officials have said in recent days that if long-term interest rates remain elevated there may be less need for the Fed to act.”
Additionally, Powell emphasized that the central bank will need to see more encouraging data demonstrating that inflation is moving downward toward its goal before the Fed can feel confident. The Fed Chair also stressed the complicated nature of either doing too much or too little when it comes to addressing monetary policy in these difficult times, assuring investors that “the committee is proceeding carefully.”
Other financial experts are mixed on the question of whether we’ll see further interest rate hikes. For one, Pershing Square Capital Management CEO Bill Ackman believes rate hikes are done. During an interview with “Squawk Box” on CNBC, Ackman stated that “the level of real interest rates is high enough to slow things down.” Meanwhile, JPMorgan Chase CEO Jamie Dimon sees rates potentially rising by an additional 1.5%.
What Comes Next?
Until the Nov. 1 Federal Open Market Committee (FOMC) meeting, uncertainty will likely continue to spread as speculation casts doubt over markets. Further problems could stem from the fact that the group of mega-cap tech stocks known as the “Magnificent Seven'” have been struggling lately. Some experts feel these stocks have the potential to pull down the entire market.
Of course, that doesn’t mean investors should automatically expect the worst. But as we look toward the next FOMC meeting, the threat of more rate hikes will have many investors proceeding with extreme caution.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
