Last updated on March 29th, 2024 at 10:12 am
Understanding the end of free money and stock market freakout in 2022
The end of free money has been a long time coming. You may have observed some volatility in the stock market recently.
It took some time to set in after last month, but markets went into a frenzy from Friday through Monday when they understood how serious the Fed is about battling inflation.
As a result, stocks had their worst start since 1939, with the S&P 500 falling over 16%. In a nutshell, the "free money" era of central banking ended. Since the outbreak, the Fed has backed markets through ultra-accommodative monetary policy, including near-zero interest rates and quantitative easing (QE).
Stocks thrived as a result of these loose monetary policies. As long as the central bank continued infusing cash into the economy as an emergency lending tool, a safety net was put in place for investors seeking various types of risk assets.
The end of free money
The end of free money is coming, but it won't be a good day for stock markets and the economy in general. The end of free money will impact everything from real estate to college loans to credit scores—and it may even affect how much you pay for your food at restaurants or buy clothes at retailers.
It means that trillions more dollars are floating around than usual right now; if everyone wanted them all at once, then prices would rise dramatically as supply meets demand—but because people are saving less and investing less than they used to due to increasing rents/mortgages/student loans, etc., there aren't enough people who want those extra dollars floating around to cause prices to go up too much!
The stock market crash in 2022 is a real possibility. That's because the Federal Reserve, which sets interest rates for banks and businesses, will raise them to reduce inflation.
A new normal for Stock
The new normal in the stock market is not a crash but a slow recovery. The bull run we've all come to know and love is over, and instead of getting ready for an imminent boom or bust scenario (which would be bad), we're stuck with low growth rates for years to come.
It can be frustrating for investors who want actionable advice on how to get ahead in their portfolios—but don't worry: there are ways around this situation!
While all this is happening, we're not sure what will happen to companies. The stock market has been one of the best investments for many years, but a lot can change in upcoming years.
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