Fed Will Crash The Economy, Jerome Powell held a press conference today in Jackson hole Wyoming and he had a lot to say. First, he came out hot and he started with the federal reserve must get back down to a 2% inflation goal. Given that we’re at 8.5% now we’re getting an f minus and it is going to be incredibly difficult to get there.
Powell went on to say that price stability is incredibly important for the federal reserve it’s literally one of their two mandates and in order to get price stability the market has to understand what’s going to happen in the future. The average American family can’t live in an environment where they go to the grocery store month after month after month and prices continue to skyrocket.
Even over a one or two-year period, you need to have some stability in the market so that people can plan their lives and they understand what they’re going to spend money on and how much it’s going to cost. Now contrary to popular belief the federal reserve understands this. Jerome Powell specifically called out the fact that high inflation impacts the people who are least prepared to handle it, that’s because in the united states 45% of Americans have no investable assets. They don’t even know what inflation really is they just realize that every time they go to the store prices are going up and their life is getting more expensive.
Fed Will Crash The Economy, The wealthiest people in our country are much better prepared to handle inflation. A tiny percentage of their monthly budgets actually go to high-inflation goods. They’re usually so well sophisticated that they understand how inflation works and of course, they have their investment portfolios which allow them to actually benefit from high inflation environments.
The federal reserve is in a unique situation they got to get inflation down but they do realize that they’re gonna have to create tons and tons of pain for tens of millions of Americans in that effort. Powell explicitly called out that pain is on the horizon and that is going to be the cost of trying to get inflation down. His argument is if we allow inflation to run wild high inflation is going to be worse than the pain we’ll have to swallow to get the inflation to come down.
Fed Will Crash The Economy, The federal reserve for months now has been talking about destroying demand that demand destruction is both in consumer sentiment of their willingness to buy goods and services but it’s also in financial markets for investors as well.
We’ve already seen a little bit of pain but Jerome Powell was relatively hawkish. He seems to be issuing a warning saying that there is more pain on the horizon buckle up, strap in and get prepared. One of the areas that he talked about was the labor market which has historically been pretty strong. We’ve been sitting around 3.5% unemployment and there are about 10 million open jobs. So if you don’t like yours there’s been plenty more that you could go and get but, given the demand destruction given the increasing interest rate and the quantitative tightening that the federal reserve is pursuing.
He expects the labor market to start to soften which means that unemployment will go up and people will lose their jobs. They say it in all kinds of fancy ways but that’s what he’s talking about people will lose their jobs unemployment will go up and the labor market won’t look so pretty.
When you have tighter financial conditions when you have interest rates going up when you have layoffs increasing us economy is going to slow down. The cost of capital is getting more expensive and business owners see an uncertain future.
It’s harder to invest in r&d, it’s harder to invest in expansion, you simply want to make sure that you have a strong balance sheet that you optimize your cash flow, and that you survive these types of economic downturns. The federal reserve has one specific focus at the moment.
Fed Will Crash The Economy, The most important thing is to get inflation down eight point five percent down to two means that they’re going to have a lot of work to do, but the side effects of that effort are that there is going to be further and further economic pain on the horizon, that is true for individuals and for corporations.
While you sit at home and you listen to Jerome Powell talk about the federal reserve’s view on the current economic environment what you need to know is that you should be acting like every business strengthen your balance sheet and make sure that you have the cash flow to survive this economic downturn. No one knows how bad it will get or how long it will last but we know that they are telegraphing what will happen.
The federal reserve is telling you that they are going to crash the u.s economy in order to get inflation under control. If you hear the federal reserve saying that they will crash the u.s economy it’s probably worth listening. As the old adage says don’t fight the federal reserve they’re in control they say they’re going to torpedo this thing well you probably should be prepared for the worst-case scenario.