Week in Review: September 30, 2022

Markets suffered another bruising week as investors continued to worry about inflation, future Federal Reserve rate hikes, and slowing global economic conditions. The declines pushed the S&P 500 back into bear market and left the index at new lows for 2022. Historically, September is the worst month for stocks, and 2022 was no exception with the S&P falling 9.3%, its largest monthly decline this year. Interest rates continued to rise with the 10-Year Treasury yield briefly reaching 4.0% for the first time since 2008.

Multiple Fed officials spoke during the week, reinforcing the message that the Fed must remain committed to fighting inflation despite the potential for economic “pain.” Responding to a question about increasing the Fed’s inflation target above 2%, St. Louis Fed President James Bullard described it as a “bad idea” saying that doing so would damage the Fed’s credibility and inject further uncertainty into the markets.

In a moment reminiscent of former European Central Bank (ECB) President Mario Draghi’s famous “Whatever it takes” pronouncement during the height of the European debt crisis, the Bank of England (BoE) announced a new bond-buying program “on whatever scale is necessary” in order to “restore orderly market conditions.” The BoE’s move followed the government’s surprise announcement to slash taxes and boost borrowing in an effort to stimulate growth. In the immediate aftermath of the announcement, British bond yields surged while the Pound fell to its lowest level on record against the U.S. dollar.