The US economy will fall into a recession unless the country’s central banks cut interest rates as soon as possible, a leading expert has warned.
Economist Steven Blitz is sounding the alarm that the Federal Reserve is at risk of being “too late” to last its base rate as the Dow dropped 1,000 points when the New York Stock Exchange (NYSE) opened today.
The Dow slipped 2.7 per cent initially, mirroring similar drops in Japan’s Nikkei 225, which fell 12.4 per cent or 4,451 points – the biggest fall by points in the index’s history.
This comes following a weaker-than-expected jobs report in the US and the Fed’s failure to cut interest rates last week.
Reacting to the news, stock markets in Taiwan, South Korea, India, Australia, Hong Kong and Shanghai have all tumbled, as well as the UK’s FTSE 100.
Stocks in tech were the worst hit with the Nasdaq index down six per cent upon opening.
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The Fed Chair Jerome Powell has suggested rate cuts are on their wayGETTYBlitz, the chief US economist at TX Lombard, told BBC’s Business Today that an economic downturn is not set in stone but the Fed will need to slash rates at its next meeting, if not before.
He explained: “It’s not a recession, but the economy is weakening.
According to the economic expert, if the central bank continues to wait for the situation to get worse is going to wait, “it’s too late”.
Furthermore, he outlined that the US should react to the stock market’s warnings as there “will be in recession by the end of the year”.
Despite today’s stock market panic, the ISM’s July 2024 Purchasing Managers Index (PMI) registered 51.4 percent, 2.6 percentage points higher than June’s figure of 48.8 percent.
This is a leading indicator of the direction of economic trends in the manufacturing and service sectors, which outpaced estimates for last month.
The 10 services industries reporting growth in July were : arts, entertainment and recreation; accommodation and food services, mining; construction; management of companies and support services; transportation and warehousing; public administration; finance and insurance; health care and social assistance; and utilities.
This suggests large proportions of the US economy is growing and thriving despite ongoing recession concerns.
Today’s global stock market sell-off also coincides with investor becoming more apprehensive about the prospects of the world’s biggest tech companies, as well as frustration with the Fed.
Amazon, Meta, Apple and Alphabet shares have soared in the last 10 months thanks to their massive investments in AI with the hope this will lead to better sales and profits.
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Stock markets are plunging around the worldReuters
These hopes of an AI boom were hit with disappointing financial results from tech firms last week.
Today, Big Tech lead the charge of the biggest companies listed on the stock market to suffer the worse hits.
If these firms are hit, the wider S&P500 and Nasdaq indexes also get pulled down.
This month alone, shares in Amazon and Nvidia have fallen by 20 per cent, Facebook-owner Meta by 13 per cent, and Apple by eight per cent.