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The Fed sees economic pain ahead. Stock markets are feeling it now.

Stock markets sank to their lowest levels since 2020 on Friday, continuing a bad slump that began in August as investors try to grapple with economic head winds in the United States and around the world that are only likely to worsen.

Major stock indexes closed out the week with losses, capping the fifth decline in the past six weeks. The Dow Jones industrial average dropped by 483 points, or 1.6 percent, at Friday’s close, and fell below the 30,000 mark. The index narrowly avoided closing in bear market territory, a drop of 20 percent from its previous high. The S&P 500 slid by 1.7 percent, and the Nasdaq Composite by 1.8 percent.

The Federal Reserve has pledged to get inflation back under control — even if slowing the economy means unemployment rises and households and businesses feel some pain. And although the Fed’s move to raise interest rates this week was widely expected, stock markets are feeling that pain already.

“The Fed’s continued balancing act between restoring price stability in exchange for economic pain has roiled the markets as hopes for a soft landing are quickly fading,” said Nicole Tanenbaum, partner and chief investment strategist at Chequers Financial Management. “Monetary policy is a blunt instrument, and investors are rightly concerned that the Fed may go too far too quickly before it is able to accurately assess the effects of its policy on the economy.”

The bad market news — and the Fed’s forecast of a sharply slowing economy — could also affect campaigns for this fall’s midterm elections in Congress, where Republicans have been hoping voters will blame President Biden and Democrats for high inflation. Inflation has become a somewhat less salient issues among voters, as people say they’re feeling better about the economy and getting some breathing room from falling gas prices. But turmoil in the markets could become a hot topic on the trail.

The full weight of the Fed’s actions since March — pushing a key interest rate up by 3 percentage points already, with more increases still to come — may not be felt until later this year or next. But financial markets are taking in the central bank’s promise and sending alarms back out — making clear that no matter how many times Fed officials say they’re going to do whatever they can to crush inflation, the idea still roils Wall Street.

“I believe it’s probably going to get worse before it gets better,” said Dan Ives, managing director and senior equity research analyst at Wedbush Securities.

Analysts say the drop is not only about the Fed’s moves so far, but also about further tightening ahead, and the growing likelihood that the Fed cannot get inflation down without causing a recession. That kind of downturn could quickly ricochet down to corporate profits, too.

“A soft landing would be very challenging, and we don’t know — no one knows — whether this process will lead to a recession or if so, how significant that recession would be,” Fed Chair Jerome H. Powell said Wednesday, after the Fed’s rate announcement.

Supersized rate hikes are the Fed’s new normal

The central bank is rushing to cool down the economy and get consumer prices down. Officials are not seeing enough progress yet. But the market jitters reflect a domestic and global economy already headed for a slowdown.

Oil prices fell to the lowest levels since January. The S&P energy sector was also down more than 6 percent.

Shares in large tech firms including Apple, Amazon, Microsoft and Meta Platforms fell Friday. (Amazon chairman Jeff Bezos owns The Washington Post.) Goldman Sachs cut its year-end S&P 500 forecast, driven largely by climbing interest rates. On the flip side, bond yields rose this week after the Fed’s latest rate hike, and the 2-year and 10-year Treasury rates hit highs unseen for more than a decade.

Major market indexes are down significantly for the year so far, though the long bull market that lasted until recently means they’re still up more than 30 percent over the last five years.

Bad economic news could become a political issue. House Minority Leader Kevin McCarthy (R-Calif.), announcing the GOP’s official campaign agenda on Friday, touched on the topic: “We want an economy that is strong. That means you can fill up your tank. You can buy the groceries. You have enough money left over to go to Disneyland and save for a future — that the paychecks grow, they no longer shrink.”

The brutal close to the week came after the Fed raised rates yet again by three-quarters of a percentage point, its third such move and fifth hike of the year in its fight against inflation. Wednesday’s increase would have been considered outlandishly large until recently. But Fed officials want to push rates past the…

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