To Prepare For Pain Ahead

It's not like we aren't already feeling the pain. There is pain at the gas pump, there is pain at the grocery stores, there is pain in the electronics we purchase, and if you are in one of those states where home prices continue to skyrocket (hello, California), well there is pain in mortgage prices as well. And if that is not enough pain for any of you, the Federal Reserve is issuing another warning – prepare for more pain.

Words come cheap; reality is where the damage is done. Federal Reserve Chairman Jerome Powell recently said that he and his cronies, excuse us, he and his colleagues have pledged to continue raising interest rates until that time that inflation is finally under control. Powell was speaking at an economic conference in Jackson Hole, Wyoming when he admitted that the higher borrowing costs that everyone is now seeing will more than likely (aka definitely) cause more pain in the short-term (aka as long as they wish) for families and businesses. In this instance, his words are definitely not cheap, and the reality of the situation is just beginning to manifest.

Because of our new reality, we may see the unemployment numbers start to jump again. Most definitely the economy will rise at a snail's pace. But Powell expressed his thoughts via another warning saying that the alternative could be even more detrimental than the short-term. If we are to allow inflation to continue rocking this nation unchecked, things will get much, much worse.

"Without price stability, the economy does not work for anyone,” Powell said via NPR. “We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored,” Powell continued. “We will keep at it until we are confident the job is done.”

Throughout most of the COVID pandemic, the "job" that the Federal Reserve had been doing was keeping the interest rates as close to zero as possible. Job well done. Since March of this year, though, the Federal Reserve has pushed those rates up by 2.25 percentage points. Yikes. And true to his word, we are staring the "short-term" right in the face. Powell and Federal Reserve say more rate hikes are on their way and the next one may come in September at the next Fed meeting.

This news had a massive effect on the stock market as the notion of higher interest rates had sellers selling. The Dow Jones Industrial Average dipped 3% (a 1,000-point decline) after Powell's candid comments. His Federal Reserve warnings also cause the S&P 500 index to drop by almost 3.4%. Folks, times may be tough now, but buckle up, it may turn into an even bumpier ride.

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