Wall Street plunges as global recession looms

Yesterday’s large-scale sell-off on Wall Street, in which shares of major retail companies experienced their biggest decline since the October 1987 Black Monday stock market crash, was in response to clear indications the US and global economy are moving rapidly into recession.

A television screen on the floor of the New York Stock Exchange, Wednesday, March 16, 2022, shows the Federal Reserve’s decision to raise interest rates. [AP Photo/Richard Drew]

Wall Street has been falling since it reached record highs at the start of the year as increasing interest rates hit high-tech companies whose rise has been fueled by the pouring in of virtually free money by the US Federal Reserve. But this supply is now being cut off as the Fed lifts interest rates in response to the highest inflation in 40 years to clamp down on workers’ wage demands.

As a consequence, the tech-heavy NASDAQ index has fallen by more than 25 percent this year amid signs the speculative bubble is being deflated, increasing the risks of a major crisis in the financial system.

But yesterday’s sell-off, in which the Dow lost more than 1,100 points in its worst day in almost two years, the S&P dropped by 4 percent and the NASDAQ was down by 4.7 percent, marked a qualitative new turn as growing fears of recession took hold.

The shares of Target, one of the biggest US retailers, plunged by 25 percent after the company reported its costs had risen by $ 1 billion due to higher gas prices and transportation costs.

At the same time, it was hit by falls in discretionary spending as working-class families have had to divert growing portions of their declining real wages to spending on essential items, such as food and gas, in the face of an inflationary spiral which has seen the price of these items rise faster than the official inflation rate of 8.5 percent.

The Target crash was mirrored by Walmart whose shares fell 6.8 percent after dropping by 11 percent the previous day.

Numerous statements by Federal Reserve chair Jerome Powell and other officials have made clear that, if necessary, the Fed will induce a recession on a scale equal to, or even greater than, that instigated by its chair Paul Volcker in the 1980s which created massive social and economic devastation.

Speaking at a conference on Tuesday, Powell made it clear the central bank would push ahead with its lifting of interest rates to suppress growing wage demands.

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