As more negative news about inflation has come out and the Federal Reserve has made an aggressive jump in the interest rate, the Dow Jones Industrial Average underwent a big nosedive on Thursday, marking the first since January 2021.
The Dow Jones Industrial Average is a stock market index that monitors 30 big publicly listed businesses that trade on American exchanges.
While former President Donald Trump was in office, the Dow topped 30,000 for the first time at the end of 2020. The Dow closed out at just over 31,000 when Biden took office in January 2021, as things looked to be bouncing back following the recession caused by COVID and the lockdowns put in place to attempt to limit the spread of the disease.
The Dow has recently dropped owing to many economic difficulties, including record inflation rates and ongoing supply chain bottlenecks, after steadily climbing to about 37,000 through 2021. The index fell below 29,900 on Thursday afternoon, marking a 19 percent drop from its top in early 2022.
Most notably, the Consumer Price Index (CPI) rose 8.6% year over year in May, above experts’ estimates. Over the same time period, the Producer Price Index (PPI), which tracks inflation for wholesalers, gained 10.8%.
The Federal Reserve’s announcement that it will raise interest rates by 0.75 percent, the most aggressive monetary policy action since 1994, triggered the selloff on Thursday. After a 0.25 percent rate hike from near-zero levels in March, the central bank raised rates by 0.5 percent in May, the greatest increase since 2000.
The purpose of the rate hike is to deter more price increases and to show investors that central bankers are serious about combating inflation. However, they have some severe negative consequences, such as higher borrowing prices for both firms and consumers. Regrettably, this reduces economic activity.