Chairman Powell’s Jackson Hole message was short, albeit crystal clear!
Powell will continue to increase rates, and leave rates elevated above “neutral” until inflation comes down to 2%.
Investors were expecting Powell to hint that he’s getting closer to stop raising rates, and rates would start to drop in 2023. There was no evidence that is even close to being on the table.
Powell stated, “while higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.” Sounds that Powell truly believes a recession is the cure to kick current inflation to the ground. Powell has been wrong more than right since taking over in 2018, however he has the power of the pen!!
The stock market will most likely price in rates being higher for longer. This could mean stock prices will come down to reflect earnings projections based on higher rates and slower growth. In my opinion, there is no rush to be fully invested, and having a little cash on the sidelines makes logical sense for now.
Keep in mind, we’ve faced challenging times in the past that were overcome, and we’ll do the same this time around.
Student Loan Forgiveness
I’m sure you’ve heard enough about this topic, however I must comment.
There are approximately 43 million Americans that have federal student loans, with an average balance of $37K. One-third owe less than 10K, and half owe less than 20K. Is having 10K, 20K or 37K of student debt going to stop someone from buying a house, having a family, buying a car? I don’t think so!
The average rate on student loans ranges from 4.99 to 7.54%. Let’s say you have a $15K student loan at 8% for 10 years. The monthly payment is approximately $180.77. This is stopping you from buying a house???
Perhaps we should start teaching younger adults how to budget money. I can certainly appreciate we all want nice things and to enjoy discretionary activities. Unfortunately, some younger people believe they’re entitled to the finer life, without “doing the time.” We are not sending a positive message with this decision.
I am in favor of assisting tax-payers who are having challenging times, so I’m not heartless. This forgiveness however is a pure giveaway, and yes, it’s inflationary!!
Happy Labor Day
Labor Day pays tribute to the contributions and achievements of American workers.
Labor Day also leads us to the end of summer…. It’s so true, time moves faster as we get older.
I hope everyone has a relaxing and enjoyable Labor Day weekend!