Concerns that the US Federal Reserve will not be able to stop rising inflation – which has reached its highest levels in four decades – without plunging the US economy into recession, led to disaster in today’s session on Wall Street.

The Dow Jones Industrial Average closed 1.99% lower at 32,245.70 points and Standard & Poor’s 500 lost 3.20% to 3,991.24 points – thus breaking the 4,000 point mark, its lowest level since March 2021.

The Nasdaq Technology Index fell 4.29% to 11,623.25 points. On Friday, the Nasdaq also closed down more than 4%.

Investors are increasingly concerned about the Fed’s policy constraints, at a time when disruptions in supply chains pose a potent threat to inflation, along with the war in Ukraine and lockdowns in China caused by the pandemic.

Data released today shows that US consumers are seeing prices, within three years, higher than they thought a month ago – a worrying signal for Federal Reserve officials, who are trying to maintain long-term outlook.

Shortly after the stock market closed, the Federal Reserve, in its Financial Stability Report, warned of deteriorating liquidity conditions in major financial markets, amid rising war risks in Ukraine, monetary tightening, and rising inflation.

On Friday, US labor market data revealed that the rate of the labor force – working or looking for work – fell to 62.2%. In contrast, hourly wages rose 5.5% year-over-year, but it was below analysts’ estimates.

These numbers are worrying for the market, as they may indicate a tighter monetary policy on the part of the US Federal Reserve, not only to contain inflation but also to ensure full employment.

Last week, Federal Reserve Chairman Jerome Powell said the central bank is expected to raise interest rates by another 50 basis points in the next two meetings (June and July), but sees no need for a 75 point hike. However, the market is increasingly wary of further tightening.