Powell doubles down on the fight against ’flation, paving the way for temporary “pain”
Powell’s prognosis… The #flationary fight ain’t over. On Friday, Fed chair Jerome Powell said he plans to keep hiking interest rates until inflation’s under control — which could take a while. The news disappointed some investors, who hoped rates had peaked after inflation cooled last month. Powell acknowledged “pain” ahead. Markets responded accordingly:
- Stocks slipped in the US, Europe, and Asia yesterday after plunging last week. Gold also fell, and bitcoin dipped below $20K to its lowest level since mid-July.
- Tech tumbled, notably Apple and Nvidia. Higher rates curb spending and lower companies’ future earnings.
- Currency climbed: The USD hit a 20-year high yesterday after investors ditched other currencies and investments for the relatively stable dollar.
Bitter pill… Powell’s ready to make sacrifices. His statement disappointed investors but was no surprise. For months JPow’s said he’ll keep fighting inflation till it sinks to near the Fed’s target of 2% — even if it means some economic pain. Last Friday he doubled down. Now he expects:
- Single whammy: “Softening of labor market conditions” (translation: job losses).
- Double whammy: “Sustained below-trend growth” (read: a small recession).
No pain, no gain… Powell’s prescription may hurt now, but a temporary slowdown is better for markets and consumers than spiraling inflation. The medicine appears to be helping Americans already: real disposable income rose in July after falling for months. But painful side effects include slumping stocks and increasing layoffs. Despite that, jobs have (so far) been resilient. August hiring data comes out Friday.