Interest Rates Will Change This Month, Powell Says

Interest Rates Will Change This Month, Powell Says

( – There is never a shortage of political posturing and various advocacy groups demanding this or that. However, it is woefully inadequate as a means of measuring the health of an economy the size of one like the United States. The truth is, there are many bits and pieces that make the overall economic picture come together like a jigsaw puzzle — and several of those have been in the news recently. Interest rates are of particular interest.

Going Up

The Federal Reserve Chair Jerome Powell says it is a near certainty that the group will be raising the interest rates in the coming weeks. While testifying before the House of Representatives Financial Services Committee, he said he believes that pumping rates up by a quarter-point is an appropriate action at this time.

The increase that Mr. Powell is talking about does not have a direct impact on consumers, but it does affect is the cost that banks incur on short-term borrowing. However, those institutions tend to increase what they charge to consumers for home mortgages, auto loans, and credit cards.

The board of governors is not unanimous in the thought of how large of an increase is necessary. Christopher Waller, for example, said he believes that doubling that to a half-point is needed to slow the rate of inflation.

Rampant Inflation

The Bureau of Labor Statistics (BLS) recently announced that the Consumer Price Index (CPI) rose 7.5% between January 2021 and 2022, something the country has seen in 40 years. One basic tenet of economic theory says that when supply drops and demand stays stable or increases, prices tend to rise.

This is exactly what is happening in the country with the supply chain issues that came out of the worldwide shutdowns caused by the COVID-19 pandemic and the lack of trucks to move the influx of products. Also having a great impact on the overall rate of inflation are fuel oil and gasoline prices, which saw the year-over increase at roughly 40%.

When More Becomes Less

The far-left progressive branch of the Democratic Party — the public face of which is presented by the likes of Representatives Ilhan Omar (D-MN) and Alexandria Ocasio-Cortez (D-NY) — made a lot of noise about a $15 per hour federal minimum wage. That has happened, but ironically, or perhaps expectedly, it hasn’t worked as planned for many companies and cities/states that raised pay rates.

The Labor Department statistics show that wages went up approximately 4% over the same time frame, and it doesn’t take a degree in advanced mathematics to see the problem. In fact, a middle school student can probably understand that subtracting a larger number from a smaller one equals “not good,” especially as it relates to how much money one has.

For those who lived through the early 1980s and experienced economic woes firsthand, this scenario may all sound a little familiar. Russian President Vladimir Putin’s war in Ukraine must be factored in, and as Mr. Powell put it, that means the Federal Reserve will have to be “nimble” in dealing with future rate hikes.

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