The stock market has had a weak start to the year on investors’ concerns about multi-decade high inflation, Russia’s invasion of Ukraine, rising energy prices, and the potential of aggressive rate hikes by the Federal Reserve. The economy has been under severe inflationary stress, with the Consumer Price Index rising to 7.9% in February, an increase not seen since January 1982. Crude oil prices have skyrocketed recently, with the WTI and Brent benchmarks hitting multi-year highs amid fears of supply disruptions. Historically, the U.S. economy has slipped into recession amid high oil prices. And high inflationary conditions might persist with crude oil prices persistently above $100 bbl.
After announcing its first interest rate increase in more than three years, the Federal Reserve has indicated that it may hike interest rates even more aggressively. Higher rates could make it difficult for businesses to grow. According to economist Mohamed El-Erian, “The bond market believes inflation is too high, the Fed is well behind the curve, and the Fed risks pushing the economy into recession as it tries to catch up.”
