A recession warning for the US has been issued after global stocks dropped sharply, sparking fears of an economic collapse. This anxiety has been fueled by the Federal Reserve’s decision not to cut interest rates earlier this week, raising concerns among analysts that the central bank might have acted too late.
On Thursday, the Dow Jones Industrial Average fell nearly 500 points, dipping 494.82 points, or 1.21%, to end at 40,347.97. This drop comes as US unemployment rose to 4.3%, the highest since October 2021. Additionally, the US economy added only 114,000 jobs in July, significantly below the 175,000 jobs forecasted by economists.
Richard Flynn, Managing Director at Charles Schwab UK, said, “Today’s weak jobs report indicates that demand for labor is losing pace. The recent loosening in the jobs market has been a positive indicator for inflation prospects, as too much activity can be a precursor to demand-side pressure on prices.”
Despite inflation easing in the US, the Federal Reserve opted to keep the Federal Funds Rate at its 23-year high of between 5% and 5.25%. This decision contrasts with other central banks, like the Bank of England, which are reducing their base rates.
Traders have expressed surprise at the extent of the stock fall. Japan’s Nikkei 225 index experienced its second-largest points drop in history, closing down 2,216.63 points after weaker-than-expected US factory data revealed an output fall to an eight-month low in July. Initial weekly jobless benefit claims in the US also reached their highest level in 12 months.
The pan-European Stoxx 600 index slumped by 2.15% to a three-month low, while Germany’s Dax fell by 1.98%. France’s Cac 40 and the UK’s FTSE 100 also saw significant drops.
With markets plummeting, analysts warn that the Federal Reserve needs to act quickly. The Federal Open Market Committee (FOMC) has only three interest rate announcements left this year, and traders predict that 1.75 percentage points of rate cuts are needed to prevent a recession.
Adding to market concerns, Big Tech giants like Apple and Amazon posted poor results this week, further spooking investors despite Federal Reserve Chairman Jerome Powell hinting at a future rate cut in September.
Source: GBNews
