Quoted from THE NEW YORK TIMES:
Stocks are dropping now because companies and consumers face rising costs nearly everywhere they turn and investors fear that the Fed will clobber the economy as it tries to get inflation under control. The central bank has already raised interest rates twice this year, and Wall Street is bracing for interest rates — which were close to zero in March — to rise as high as 3 percent by September. The last time the federal funds rate was that high was during the Great Recession.
The tightening from higher policy rates filters through the economy to make borrowing of all kinds — from mortgages to business debt — more expensive. That slows down the housing market, keeps consumers from spending and discourages corporate expansion.
But interest rates are a blunt tool, and their impact on the economy is delayed, making it difficult for the Fed to know if it has gone too far before it is too late.
“By the time you start to catch it and realize you did too much, you’re going to be deep in a trough,” said Dan Genter, the chief executive of Genter Capital Management, an investment advisory firm. “It’s going to take nine to 12 months before you see the total effects, and it takes that long to get out of it.”
Borrowing costs are rising as $5-a-gallon gasoline and higher food costs, rents and home prices all begin to take a toll on households, Mr. Genter added. That in turn hurts consumer spending, which has long been a principal driver of the U.S. economy.
“My fear is that basically the Fed is really going to tighten too much and potentially throw us into a serious recession,” he said.