WASHINGTON – After a dismal start to the week on Wall Street, there are growing fears a recession could be coming, and a big decision anticipated Wednesday from the Federal Reserve is causing even more concern.
The S&P 500, the index tied to most 401K retirement plans, finished down nearly four percent Monday and has now plunged more than 20 percent for the year, officially entering bear market territory.
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"The overall takeaway is that the recession risk has risen and it looks like it's going to be a lot harder than anyone anticipated initially," said Ed Moya, a senior market analyst at Oanda.
Inflation is pounding consumers. Everything from gas – now averaging more than $5 a gallon nationally – to groceries is going up.
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A new survey shows 67 percent of Americans are dipping into savings to pay their bills and some are resorting to credit cards.
"We're seeing more utilization of credit right now because people are trying to sort of figure out a way to fill in the gap in their household budgets," said Mark Hamrick, a senior economic analyst at BankRate.
Meanwhile, the Fed is expected to take aggressive action Wednesday, potentially raising interest rates .75, the steepest hike since 1994.
"The problem is that the Fed was late with fighting inflation and now they're kind of scrambling and the opportunity to begin tightening was there," said Moya. "You can make the argument that they should have been raising rates at the beginning of the year."
Republicans on Capitol Hill blame government spending for inflation. Sen. John Thune (R-SD) pointed to the $1.9 trillion American Rescue Plan in a recent hearing.
"There's no question that the $2 trillion bill last year overheated the economy and it's why we have the mess that we have today," said Thune.
Treasury Secretary Janet Yellen insists it was necessary though to pull the economy out of a post-pandemic slump.
"The overwhelming risk was that Americans would be scarred by a deep and long recession," said Yellen.
Either way, it spells trouble for President Biden whose poll numbers are at an all-time low. Most Americans cite inflation for the reason.
The economy is expected to hurt Democrats in the November midterm elections and a recent New York Times article reports many Democrats are whispering Biden should not seek reelection in 2024.
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Americans Raid Their Savings Account
Two-thirds of Americans say they're dipping into their savings accounts as the country faces record-high gas prices and the worst inflation in 40 years.
Republicans blame the Biden administration for the soaring prices, while the president says his policies are working and helping American families.
On Tuesday, the president put the blame on Vladimir Putin for the rising costs that Americans are seeing around the country. Biden also said addressing these issues is a top priority.
"I'm doing everything in my power to blunt Putin's gas price hike," said Biden in a speech at the AFL-CIO convention.
President Biden claims that the Russia/Ukraine war has caused food prices to increase too.
"I'm working closely with our European partners to get 20 million tons of grain locked in Ukraine out on the market," the president stated.
Biden alleges that his administration's policies would help combat costs, but many of them can't get through Congress.
"The problem is Republicans in Congress are doing everything they can to stop my plans to bring down costs on ordinary families, that's why my plan is not finished and the results aren't finished either," the president noted. "Jobs are back but prices are still too high."
Republicans disagree and claim Biden's policies like the American Rescue Plan are punishing hard-working Americans.
"We said it was going to lead to inflation ... it did. We said it was going to lead to a labor shortage ... it did," Rep. Byron Donalds (R-FL) told reporters Tuesday.
According to a new Forbes Advisor survey, two out of three Americans say they're pulling money from their savings accounts as consumer prices spike.
"Inflation is costing average American families an extra $460 a month for that gas, their food, their groceries," claimed Rep. French Hill (R-AR).
Economists fear a recession is coming as the S&P 500 enters a bear market and the Federal Reserve weighs a substantial interest rate hike.
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