December 3, 2022

Market and Financial News

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The Week in Business: Market Chaos in Britain

2 min read

The new British government’s announcement last week that it planned to make drastic tax cuts sent markets tumbling, the pound sinking and the Bank of England scrambling to restore some calm. The panic stemmed from fear that the tax and spending measures proposed by Britain’s recently appointed prime minister, Liz Truss, would add to soaring inflation in the country, running up against the central bank’s efforts to rein it in. Ms. Truss’s government argues that cutting taxes will stimulate investments and that the benefits will buoy the rest of the economy — but investors do not appear convinced. Their unease rippled throughout Europe and to the United States, where benchmark indexes slid. The pound hit its lowest recorded point, creeping near parity with the dollar. On Wednesday, the Bank of England stepped in, saying it will undertake large-scale purchases of British government bonds in the coming weeks to “restore orderly market conditions.” Its forceful intervention pushed the pound back up slightly and helped markets regain some of their losses.

Shock waves from Britain reached investors on Wall Street, where stocks were already reeling from worries that the Federal Reserve’s actions to tame inflation could lead to a recession. On Friday, the S&P 500 ended the third quarter with a loss, the first time the index has posted three consecutive quarters of losses since 2009. Analysts say investors will not be soothed until central bankers begin to see signs of the economy slowing, which would allow the Fed to begin to ease its campaign of aggressively raising interest rates. The fear is that the Fed will go too far and inflict serious damage on the U.S. economy. The central bank’s policymakers argue that it is still possible to achieve a so-called soft landing, in which the economy cools without falling into a recession. As evidence, they point to the strong jobs…

Marie Solis

2022-10-02 07:00:04

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