2 Gloomy Forecasts Sour the Market's Mood

Yellen worries about inflation, the World Bank about stagflation
By John Johnson,  Newser Staff
Posted Jun 8, 2022 9:45 AM CDT
2 Gloomy Forecasts Sour the Market's Mood
Treasury Secretary Janet Yellen testifies during a Senate Finance Committee hearing on Capitol Hill on Tuesday.   (AP Photo/Manuel Balce Ceneta)

The US stock market did not wake up in a great mood on Wednesday, with the Dow and the benchmark S&P 500 both down about half a percentage point in early trading. That might have something to do with two dour forecasts issued Tuesday about the US and the world economy:

  • US inflation: Treasury Secretary Janet Yellen told a Senate panel that the nation is in the midst of "macroeconomic challenges, including unacceptable levels of inflation, as well as the headwinds associated with the disruptions caused by the pandemic's effect on supply chains, and the effects of supply side disturbances to oil and food markets resulting from Russia's war in Ukraine," per Axios. She called inflation the nation's No. 1 economic problem at the moment, adding that it probably won't come down soon, reports CNN. She was continuing her testimony on Wednesday.
  • Stagflation: The World Bank added to the mood with a global forecast that raised the unwelcome prospect of "stagflation," which the New York Times describes as a combination of high prices and low growth—a combo that triggers bad memories of the 1970s. "The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth," said World Bank President David Malpass, per Yahoo Finance. "For many countries, recession will be hard to avoid." World growth is expected to tick down to 2.9% this year—down from 5.7% in 2021.

  • The mood: "We are just in a holding pattern at the moment," Brian O'Reilly of Mediolanum International Funds tells the Wall Street Journal. "Investors won't take too much risk until we get a clearer picture that inflation is moderating. I think a recession is avoidable, but we need to see inflation at least flatten but probably move lower."
(Read more economy stories.)

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