Uncertainty about how far the Federal Reserve and other central banks would go in the fight against inflation sparked a return of volatility. Large swings in stocks were common on Wall Street as the Fed raised its key interest rate seven times and signaled more hikes to come in 2023.
Still, climbing yields in the U.S. and abroad sent prices for older bonds already in investors' portfolios sharply lower. The rout in bonds was particularly painful for fixed-income investors. Inflation in the U.S. appears to have peaked at 9.1% in June. By year-end, there were hopeful signs as prices for goods fell and rents started declining. But tough inflation talk from the Fed at its last meeting of the year took the steam out of what had been a fourth-quarter rally for stocks.Wall Street's brutal year left few stocks unscathed, and the vast majority fell into a bear market under the weight of fast-rising interest rates.
The Federal Reserve's decision to raise interest rates also hammered bond prices. Because newly issued bonds were paying more in interest, the older bonds sitting in many investors' portfolios were suddenly much less attractive because of their lower yields. Then mortgage rates started to climb, spurred by expectations of higher interest rates as the Federal Reserve began raising its short-term lending rate in a bid to tame inflation. By October, the average rate on a 30-year home loan soared above 7%, a 20-year high.
Households -- especially at the lower end of the income spectrum -- are likely depleting savings built up during the pandemic, with more pain to come should the economy tip into a recession. Credit card debt ballooned and rents rose in 2022, although there are signs housing costs will be coming down. While President Biden promised student borrowers relief of up to $20,000 this year, that debt cancellation policy is tied up in the courts.
The world's second-largest economy shrank by 2.6% in the three months ending in June compared with the previous quarter after Shanghai and other industrial centers shut down for up to two months to fight outbreaks.
You realize investors are just grifting off the backs of workers.
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