The S&P 500 hit a low of 3,667 on June 15, 2022. It quickly rallied 17.4% to 4,305 by August 15. However, the rally was on ice when Federal Reserve Banker Jerome Powell reiterated that a tight monetary policy would be in place to fight inflation. At the Jackson Hole symposium, Powell stated that the costs of reducing inflation may be painful for growth but are necessary to restore price stability. These comments resulted in the S&P 500 selling off 7.4% from the August 15th high.
As Jerome stated, inflation impacts the lower wage earners as they have less discretionary money. We as a country will experience financial pain to get ahold of inflation. The Federal Reserve has a dual mandate: control inflation and maintain maximum employment. They pursue their goals by controlling interest rates and the money supply. The country is currently experiencing a low unemployment rate of 3.5% and a "record" inflation rate of 8.5%. The historically low unemployment rate gives them more room to increase interest rates.
Federal Reserve actions impact the global economy as the US dollar is the world's reserve currency. The US FED increased rates faster than the other major central banks to combat inflation. Higher rates in the US attract money from abroad, pushing up the US dollar's value. The US dollar has reached parity with the euro for the first time since 2002. When the dollar is strong, commodities, imports, and international travel become cheaper. It's a great time for Americans to travel internationally when the dollar is strong. Don't let the scary headlines deter you! The video below is an interesting take.
You know it’s bad when Barclay’s Aggregate Bond ETF (AGG) was the top performer and was down 1.23%, and the S&P 500 ETF (SPY) was down 3.22%.