Yes, the slump in Wall Street will affect you too

Expectations for curbing inflation have dissipated, and now the estimate is that the Fed will aggressively raise interest rates.

And what will happen to us?

We checked with senior economists and came out pessimistic, but still there is hope

David Rosenthal

14/09/2022

Wednesday, September 14, 2022, 10:45

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In the video: the governor announces the decision to raise the interest rate in the economy (photo: Leam)

After a week characterized mainly by gains, Wall Street woke up yesterday to a particularly difficult day, when red flickered on the screens and the fear effect skyrocketed.

The knowledge that inflation is here to stay, and subsequently the expectation of a sharp interest rate hike by the Fed, led to particularly sharp declines, with the Nasdaq index losing 5.16 percent and the Dow Jones registering a drop of nearly four percent.

It was not a good day in New York.

The screens are painted red in the stock market (Photo: GettyImages, Michael M. Santiago)

"Inflation is not going anywhere and it is clear that the inflationary dynamics in the US intensified significantly in August," says

"the index rose by 0.1% (0.1% expected) and the core index jumped by 0.6% (expected 0.3%).

As a result of this figure, general inflation slowed from 8.5% to 8.3%, but core inflation jumped from 5.9% to 6.3%, at the upper end of the forecasts.

"

"You have to understand that there were quite a few signs, and I think it will really go down eventually, but it didn't happen in this 'round' and the figure is much higher than the forecasts."

Mehhadad: "Yesterday we saw the sharpest daily decline in about two years in the US.

Following the sharp declines on Wall Street, the fear is rising among investors that the central bank in the US will continue to raise interest rates at a rapid pace against the background of the fact that the inflation environment in the US is having difficulty falling below 8%.

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with the finger on the trigger.

Fed President Jerome Powell (Photo: GettyImages, Drew Angerer)

So what does it mean, we asked?

"The central bank will not relax the interest rate soon," replies Zabrzynski, "it will rise more times and at a higher rate. This means that loans will become more expensive, the real estate sector will suffer and with it profitability, because the public will consume less.

This disappointment caused the stock market to react as it did."

In the context of real estate, Beit Or points to the housing section, which jumped by 0.7 percent, which led to an increase in the annual rate from 5.7% to 6.2%: "In our estimation - this is not the end yet, While the annual growth rate in this key section of the index is still expected to continue climbing over the coming months and may scratch the 7% rate from below. And it does not end here - the health services section of the index continues to soar, with the annual rate accelerating from 5.1% to 5.6%. The jump in the rate of inflation in the health section is critical."

The transportation and food services section are also accelerating the increase.

"You don't need to panic because of one statistic"

Alex Zbzinski (photo: official website, Meitav)

Guy Beit Or (Photo: Rami Zarnagar)

"Bottom line, this is a very strong inflation figure that throws out of the window the arguments about the end of inflation and the hope for a change of direction by the Fed," says Beit Or, "the labor market is extremely tight, wages continue to climb and the inflation figures signal to us that it is becoming embedded in the American economy - and the Fed They will want to continue pressing the brakes very aggressively."

Here it should be noted that the assessment of many analysts is that the central bank will raise interest rates in the US by no less than a whole percent.

"We don't know where it will go," notes Zabrzynski, "it's quite clear that from an economic point of view a figure like the one published yesterday is not a positive news, because it conveys that the economy needs to be 'cooled' and the market does not like that. However, one should not enter Because of one figure to panic. It may take a stronger interest rate hike, but eventually inflation will come down. If we look at the 1970s as an example, every time inflation started to fall consistently and interest rates stopped, the market went from down to up.

Do you have a mortgage?

Get ready for another interest rate increase (Photo: ShutterStock)

And how does all this affect us?

Dodi Reznik (Photo: Public Relations)

With all due respect to what is happening in the United States and the rest of the world, we are first interested in what will happen in Israel.

Will the collapse of Wall Street come here too?

"From an Israeli point of view, the stock market in Tel Aviv is falling, but in a moderate way, against the background of the fact that Tel Aviv is waiting for the Israeli index that is to be published tomorrow evening, and there is an expectation of a negative index," Reznik concludes, "The situation in Tel Aviv continues the trend of excess performance in the local market Across the world's markets, a trend that has been going on for many months.

It is likely that in the coming days we will see very nervous trading in the world's stock markets ahead of the US interest rate announcement next Wednesday."

"There are signs that inflation will decrease," adds Zabrzynski, "we are not detached from what is happening in the world, and the Bank of Israel understands that no country sees a clear decrease in inflation. In fact, this is a signal to the Bank of Israel that it needs to be careful and raise interest rates."

"Unlike the United States, we do not have a financial indicator that can tell you what the expected interest rate is. We have our price index that is published, and if there are no surprises in it, I estimate that the chance of an interest rate increase of 0.75 percent increases."

And this too, of course, should not be taken lightly.

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