Inflation Stings Americans at the Ballpark While Fed Policies Threaten Stocks

Samantha Miller

New York, NY – As inflation continues to impact Americans’ wallets, Wall Street is keeping a close eye on how Federal Reserve policies to curb rising prices could negatively affect corporate profits and stock market gains.

“Prices are crazy,” said billionaire investor Leon Cooperman, sharing his shock over $13 pretzels and $6 water bottles at a recent New York Yankees game. From the ballpark to the grocery store, inflation has pushed up costs for consumers across the board.

Now the Fed’s strategy of “higher for longer” interest rates intended to tame inflation threatens to weigh on equity markets at a precarious time. Cooperman believes rates have further to climb and worries more about America’s growing fiscal deficits.

Deficits Balloon Under Biden and Trump

While Cooperman acknowledges both political parties contributed to the ballooning federal deficit, he notes the situation has worsened under President Biden. The Treasury recently reported a $1.7 trillion budget deficit for the 2022 fiscal year, up 23% and the largest outside of the COVID era.

Factors driving the widening deficit include dropping revenues, increased social security and healthcare spending, and surging interest payments on national debt. “I’m less worried about inflation than I’m worried about the fiscal position of the country,” Cooperman said.

With Biden requesting $100 billion in new foreign aid, primarily for Ukraine, Cooperman sees heightened geopolitical tensions as “very negative for fiscal policy.” He likened today’s environment to a “guns versus butter” tradeoff where defense spending crowds out domestic investments. Further erosion of the fiscal position may fan inflationary flames.

Equity Markets Under Pressure

Already the Fed’s rate hike plans have strained equity markets as Treasury yields soared to their highest levels since 2007. With bonds more attractive, investors dumped stocks in August and September. Cooperman believes the S&P 500 is “going nowhere for a very long time” and forecasts declines for the overall market.

While corporate earnings edged up, Cooperman notes the S&P’s gains were driven by just a handful of tech giants. Excluding these “Sainted Seven” stocks, the index is down for 2022. Even positive earnings may get overshadowed by the challenging macroeconomic backdrop.

Risk of Recession in 2024

Looking ahead, Cooperman sees a recession likely in 2024 as the Fed keeps rates elevated to curb inflation. The resulting economic contraction could further pressure equity valuations, increase stock market swings, and make it harder for investors to realize gains.

But downturns also give value investors chances to buy quality stocks cheaply. To hedge risks, Cooperman suggests alternatives like real estate, precious metals, and fine art.

Fed Stuck Between Rock and Hard Place

As inflation erodes purchasing power, the Fed aims to cool the economy through rate hikes. Yet rising rates also drive up government borrowing costs, worsening budget deficits.

For stock investors, the path forward looks rocky. With corporate profits and economic growth potentially sacrificial lambs in the Fed’s anti-inflation crusade, volatility and downward pressure on equities seems likely.

All eyes will remain on how adroitly the Fed can tame prices without sparking a deep recession. And on how long the ballooning federal deficit remains sustainable amid accumulating debt obligations.

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Samantha Miller is a business and finance journalist with over 10 years of experience covering the latest news and trends shaping the corporate landscape. She began her career at The Wall Street Journal, where she reported on major companies and industry developments. Now, Samantha serve as a senior business writer for, profiling influential executives and providing in-depth analysis on business and financial topics.
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