Americans Prepare For More Pain, As Fed Fights Inflation With Rate Increases

On Wednesday, the Fed again raised rates by a quarter percent in their war against inflation. It has been challenging for many Americans as prices have risen across the country, with the cost of dozen eggs getting close to $10 and prices on other items in the store still higher than ever. 

As rates rise, it becomes a delicate situation to calm down inflation fears and not crash the economy simultaneously. 

“We want to bring down inflation, but that means landing the plane not crashing it,” Massachusetts Sen. Elizabeth Warren wrote on Twitter on Wednesday. “Chair Powell should pause his interest rate hikes and remember his dual mandate: fight inflation without throwing millions out of work.”

Senator Elizabeth Warren makes a great point. As rates continue to rise, many companies cannot borrow money as they could before the pandemic. Without the money and current growth of companies, there are significant layoffs like we have seen in Amazon, Meta, and Microsoft in recent weeks. 

Recession fears keep Americans up at night, wondering if their jobs will be next. It is not a time to rejoice with the preparation of more rate hikes. 

In September, the mortgage rates hit a high of 7%. The rates haven't been this high in over 15 years. The American people will continue to suffer at these increased rates. People need help finding the money to pay for cars or even buy new homes. 

The Fed has signaled that they will continue to rage war until inflation is stomped out of existence, but to what point will they stop?

“I continue to think that it's very difficult to manage the risk of doing too little and finding out in six or 12 months that we actually were close but didn't get the job done and inflation springs back and we have to go back in, and now you really do worry about expectations getting unanchored,” Powell said.

There is a light at the end of the tunnel. As the Fed continues to fight, they are seeing much more progress with inflation. December numbers came at a 6.5% increase in inflation from a year ago. 

“We can now say I think for the first time,” Jerome Powell said, “that the disinflationary process has started.”

The Fed sees its actions working, but for how long will these rates continue? They have proposed many more rate hikes, but wall street sees an end coming sooner rather than later. 

After Powell spoke, the markets rallied after much negativity as been spun about what could happen in 2023. There are still recession fears on the horizon, but with rates not going up as drastically as in 2022, there could be hope by the end of the year. Now is a good time to tighten those belts, budget that money, and remain frugal as this year continues.