Jerome Powell is prepared to raise rates but at what costs.
The Biden economy is a mess. Credit card debt is over a trillion dollars. The Housing market is in tatters. Inflation is at historic highs and interest rates are the highest since 2008.
Despite all this, Powell is willing to raise rates some more which may kill the economy.
Inflation in the U.S. economy remains too high and lending rates may need to move higher, U.S. Federal Reserve Chair Jerome Powell said in a highly anticipated speech on Friday.
Powell spoke at the Jackson Hole economic symposium in Wyoming, saying policies meant to cool the economy are working, but further efforts may be necessary.
“Although inflation has moved down from its peak — a welcome development — it remains too high,” he said. “We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
The Fed since last year’s conference raised its key lending rate to a 22-year high of 5.4%. Inflation, meanwhile, is on the decline. Headline inflation reached 9.1% in June 2022 and has since dropped to 3.2% over the 12-month period ending in July.
That’s still higher than the 2% target rate pursued by the Fed.
Inflation is out of control and the economy is in shambles. Increased rates may kill the housing market and small and medium sized banks.
If Powell keeps the screws tightened on small to medium banks/businesses they will continue to lose market share to all the well-connected big banks and big businesses and eventually fail.
What is going on?
It’s basic math here:
- Big Biz doesn’t need as many loans, they’re well capitalized. Or if they do need a loan, they can afford the loss of margins at scale. It’s like the Wal-Mart effect, where Wal-Mart could open new stores in certain areas, price their goods near wholesale cost, and just wait for the small to medium businesses around them with competing product lines, to slowly fail and close or go bankrupt.
- For Consumers it amounts to this, your favorite small or medium sized business has to keep prices higher on goods because they are paying historically high interest rates on their loans now and must pass that cost on to the Consumer.