Were last week’s wild market swings the advance tremors from a looming market shock? Or were they merely the violent moves that often occur at a market bottom?
Indeed, there was now a distinct likelihood the Fed would now hike interest rates by 75 basis points at both its November and December meetings.P 500, which had fallen 2.4 per cent in response to the poor inflation reading, finished the day 2.6 per cent higher. When you have tremors, you don’t always have earthquakes, but you probably should be thinking about earthquake protection.Neither argument was all that compelling and the flimsiness of both explanations was underscored by Friday’s US sharemarket decline.AdvertisementP 500 has already dropped by 25.3 per cent this year, which means that it has already suffered most of the 30 per cent to 40 per cent decline the US sharemarket typically suffers in an average US recession.
“We’ve got the most complex, disparate and cross-cutting set of challenges that I think I can remember”, he said. “And in all honesty, I think the fire department is still in the station.”Summers – who was one of the first high-profile economists to warn that central bankers were seriously under-estimating inflation risks – pointed to rising interest rates, the strong US dollar, shortages of food and energy, geopolitical tensions and the challenges of climate change.
One example was that governments could find it more difficult to fund themselves in debt markets, as was evidenced by the turmoil in the UK bond market.
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