The stock market, which plunged by more than 30% on Monday after the Federal Reserve announced that it was raising interest rates, was a major contributor to economic growth in the United States over the past few years.
But the stock market’s fall is the largest one-year drop since the Great Depression.
“The stock market is still a big contributor to GDP growth and employment, but it’s not the only factor,” said Brian Wansink, director of the National Economic Council at the Brookings Institution.
The Federal Reserve has cut its key interest rate for the past several months, and the economy continues to expand at a strong clip, even with a large share of the economy still reeling from the financial crisis and recession.
The Fed, which announced its new policy Monday, expects economic growth to be 2.4% this year and 3.2% in 2018.
“I think the stock index has actually done pretty well, but the impact of that is really just the effect of the market going up and down,” said Mr. Wansok.
What about the recession?
While stocks may have made up most of the loss, the recession that ended in 2011 did help boost GDP.
The recession hit hard on the manufacturing side, with many companies shedding jobs and spending money on equipment.
But even if the recession did not take hold as the economy shrank, it could have had a lasting impact on the economy, economists say.
It’s also possible that the recession might have pushed stock prices lower, and that was just a reflection of the impact on consumers.
A stronger stock market could mean higher disposable incomes, which would also have a long-term impact on employment, said Michael Ferrante, chief economist at the Council of Economic Advisers in Washington.
More from the Washington Times: The stock index declined by more.
Banks are trying to make up lost ground.
That’s why banks are so eager to open more accounts and to sell some assets.
Many investors are also taking a wait-and-see approach.
For instance, JPMorgan Chase & Bank of America is lowering its forecast for the economic growth rate in 2020, from 2.5% to 1.8%, and is still adjusting its growth forecast, the bank said in a statement.
Wall Street is still watching the Fed’s rate hike.
And some companies are keeping their money close to the vest.
In a note to clients Monday, Bank of New York Mellon said that it is “waiting for the Fed to take its final step before initiating the long-awaited increase in the federal funds rate.”
What else did the Fed do?
The Fed lowered interest rates in March for the first time in eight years, and it cut them again in March.
The economy has grown by about 2.1% this month, and if the Fed starts hiking, it would be the fastest rate increase in history.
On Monday, the Fed said that the economy is on track to expand 2.6% this quarter, which is above the 2.3% expansion forecast by the Federal Open Market Committee in September.
Why did the economy slow?
There are many reasons, but economists say the most likely explanation is that the economic slowdown is partly due to anemic demand for consumer goods.
Inflation, which measures how quickly the economy can absorb new goods, has been running at a slow pace, according to the Bureau of Labor Statistics.
Mr. Wannink said that this lack of growth has made some people less inclined to spend, which could have been bad news for the economy.
Some analysts think that the lack of spending in the economy also contributed to the stock crash, and some economists say that is one of the reasons the stock price decline.
While the stock is down, Mr. Ferrantee said that companies may have been tempted to hold onto their assets to hedge their exposure to rising inflation, and they are likely to be tempted again.
So what now?
Investors and business owners should take a closer look at the economy in the next few weeks, when the Fed will likely announce its policy, said Ben S. Bernanke, president of the Federal Deposit Insurance Corporation.
If the economy grows in line with the Fed, Mr., Wannok said, then the stock could increase and the dollar will decline, potentially lowering inflation and lowering consumer spending.
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