Time will tell, it always does!
The Fed hiked interest rates by a quarter of a point Wednesday afternoon, bringing the benchmark borrowing rate to 5.25%-5.5%.
That means interest rates are now at the highest level in 22 years, bringing us all the way back to 2001.
There will be lots of commentary about all this – the truth is, this was exactly what was expected by the street.
It’s a good sign because Fed Chair Jerome Powell doesn’t seem too worked up about inflation and/or about the possibility of a recession.
Personally, I’d worry about recession.
These are a few of the Chair’s comments that concern me…
“If you go through a period where inflation expectations are not anchored and inflation is volatile, it interferes with people’s lives and with economic activity,” he said. “That’s the thing we really need to avoid, and will avoid.”
The fact that Powell has established his reputation as an inflation hawk and put the credibility of the Fed on the line in the inflation fight tells you everything about their stance.
If there’s a recession … that’s what most people are expecting anyway.
If inflation comes roaring back, that’s the entire legitimacy of the central bank.
“The worst outcome for everyone, of course, would be not to deal with inflation now and not get it done,” he said.
“Whatever the short term social costs of getting inflation under control, the longer term social costs of failing to do so are greater and the historical record is very, very clear on that.”
In short… There are costs to what we are doing, but the alternative is worse. So suck it up buttercup!
Powell practically ruled out a rate cut this year:
“I’m saying we would be comfortable cutting rates when we’re comfortable cutting rates, and that won’t be this year, I don’t think it would be,” he said.
Say what you will about the Fed … their transparency is clear. There’s no smoke and mirrors.
Fighting inflation supersedes economic growth. PERIOD.