The Fed Life and skipping Macroeconomics
Copy and Paste: Same warning from last year
The difference between Papa Powells message and the same message your mom would repeat every day? There’s actually something happening from Papa Powells actions.
Federal Reserve Chair Jerome Powell (Papa Powell) painted the same picture as last year at the Jackson Hole Summit — Inflation is too high and rates could go up. The difference in 2023 is that inflation has cooled slightly with signs of economic growth just this last qaurter (2.4%) powered primarily by consumers and ‘Business Investments.’
So what does that mean? When it’s time to set rates again on September 19th’ish (and future rate reviews) the moves could be gradual and there will be more time spent on the incoming data. Last year per Powell, the increases were ‘forceful and rapid.’
What does that mean for YOU?
Rates are affecting a lot of things and since you didn’t pay attention to Macro in High School here’s what it means for you and really the goal of this fun social experiment:
1) Borrowing money costs more: You really feel this if you’re looking to buy or sell a house, but it is affecting any type of borrowing. Remember credit cards are included in the borrowing money game meaning those rates and the cost of credit card debt goes up. The goal here is that people will postpone certain projects, purchases, etc. due to the overwhelming cost of borrowing money. This includes spending money or overspending on things that might not be needed. If you got into the Real Estate market when rates were at 3% great job. If you didn’t the higher rates are pushing REIT prices lower.
2) Rates on High-Yield Savings are increasing: 4.8% and higher is what you can find on High-Yield Bank Accounts where you can pull the cash whenever you’d like. Liquid cold-hard cash earning more than the rate of inflation? Yes Please. The goal here is that this encourages people to save more and take more money out of circulation cooling the economy.
3) Stocks drop: As rates increase, investors take their money out of the market to place in more defensive investments. Because spending will most likely decrease, profits of public companies will most likely decrease, so the stock price will too. That’s the idea at least. If you’re just sprinkling some cash into the market into some good ETFs or public companies with a track record this is buying season.
