Tough talk and strong predictions were made by Federal Reserve Chair Jerome Powell this week. CNBC reports that the Fed will continue raising rates until inflation returns to a “healthy level.” In his own words:
We will go until we feel we’re at a place where we can say financial conditions are in an appropriate place, we see inflation coming down. We’ll go to that point. There won’t be any hesitation about that.
He doesn’t note any tangible targets such as what an “appropriate place” is, what barometer is used to gauge the success of bringing prices down, or how long it will take. The Fed will decide when the goal is reached.
Taken literally, if a Federal Funds Rate of 18% is required in order to lower prices to a healthy level, no matter the consequences, much pain lies ahead. Surely there must be a limit on how high the Fed would allow rates to soar. Yet this is not the first time he mentioned this. Last week, CNBC noted Powell warned that increasing interest rates will:
...include some pain...
Whether one is vehemently against central banking’s interventions or, like most people, don’t understand how central banking is truly against the public’s interest, we should all take note.
Afterall, he’s in charge of the money supply and interest rates. His organization is primarily responsible for the inflation we are suffering. It’s an unfortunate realization and it need not be this way. But the Fed serves a dual function of being both the cause and solution to our monetary problems.
A scan across more CNBC news headlines show a similar theme of doom and gloom:
Dow drops 1,100 points for its biggest decline since 2020 as the sell-off this year on Wall Street intensifies
The article addresses that this was the fifth time this year the Dow fell more than 800 points.
But that’s just stock market news. The food situation overseas is something we must also closely monitor, as headlines from the UK reveal:
Skipping meals and shrinking portions — Brits are being warned of ‘apocalyptic’ food price rises
Between higher prices, smaller portions and/or food shortages, we can only hope such “apocalyptic” pain will not come to our shores. So far, other than the shortage of infant formula recently seen in America, food shortages are something most Americans have never experienced.
Should things not go according to plan, perhaps we can learn from those in the UK whose inflation crisis seems more advanced than ours:
A quarter of Britons have resorted to skipping meals as inflationary pressures and a worsening food crisis conflate…
When Powell warns of pain ahead, as much as we may want to, now is not the time to doubt.
It’s difficult to say what the most painful outcome would be. But a future with high rates concurrent with high inflation could be one of the worst. There will be no easy way out of this.
