Jerome Powell’s Recent Explanation on Raising Interest Rates Is the Most Important in History
If you’ve invested in Cryptocurrency or stocks, this directly affects you.
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You can never be too sure about the quiet ones.
Jerome Powell is mild-mannered.
He’s as cool as a cucumber in interviews and not one to crave the spotlight.
Powell comes across as almost academic in public appearances and is unapologetic about the Fed’s massive efforts to rescue the economy.
His job is the most unforgiving in America.
As the federal reserve chairman, he’s stuck in a dysfunctional relationship between the two political parties, who expect the Fed to manage the country’s economy independently with political pressure from both sides of the fence.
No Federal Reserve chairman has received as much criticism or public ridicule during my lifetime.
Rewind to 2018 when Trump nominated Powell for the position. Powell received a 22–1 vote by the Senate Banking Committee. The only “no” vote came from Senator Elizabeth Warren. More on her later.
Following Powell’s successful appointment to the role and subsequent decisions he made on the economy — former president Trump insulted him, calling him a failure and an enemy of the state.
In a series of Tweets, Trump criticised Powell’s communication skills and even wondered where he found him.
Donald Trump — Source
“Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”
“….My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?”
“Where did I find this guy Jerome? Oh well, you can’t win them all!”
Even though the White House often grills him, Powell usually doesn’t say anything back.
When reporters ask him if he feels pressured to make decisions based on politics, he says, “We won’t make mistakes of integrity or character.”
Jerome Powell, the chair of the Federal Reserve, is one of those quiet ones you should watch. Good decisions come from experience, and experience comes from bad decisions.
Throughout his impressive career, he’s made both good and bad decisions.
In his recent explanation about raising interest rates, Powell gave the most significant insights into the economy’s future as the Fed tries to control inflation and prevent the U.S. from overheating.
Buckle up, strap yourself in and let’s get into it.
If Unemployment Increases, Stopping the Runaway Train of Job Losses Will Be Out of Control.
An increase in inflation means more pressure to increase interest rates, which means less liquidity resulting in businesses making cutbacks in the form of job losses.
The equation is simple, but it requires delicate handling.
The rise of unemployment can seriously impact people’s lives beyond just the effects of your stock and cryptocurrency investments.
If job losses continue to escalate, it can become harder to stop this trend and could have significant consequences for many people’s financial stability and well-being.
Federal Reserve Chair Jerome Powell recently testified before Congress and found himself in a heated exchange with his nemesis, Senator Elizabeth Warren.
Warren expressed concerns that the Fed’s actions would directly result in people with mortgages losing their jobs. Powell maintained that inflation is still high, and they need to keep it under control.
During the conversation, it came to light that the Fed had raised interest rates eight times over the last year, marking the most extreme rate hike cycle in 40 years.
And each of the 12 times throughout history that the unemployed increased by a full per cent (Fed’s target rate), the U.S. economy fell into a recession soon after.
While the Fed’s goal is to slow the economy, the unintended consequence is that it will throw people out of work. Powell says the ultimate goal is to control inflation, which would have far worse outcomes if left unsettled.
Jerome Powell — Source
“Although inflation has moderated in recent months, bringing it down to two per cent will be bumpy and has a long way to go.
The latest economic data is stronger than expected, suggesting that interest rates may need to be higher than anticipated.
Even though the Fed has been ultra-aggressive in the past year, we’ve never been pushed this hard in history.”
In a scathing attack, Elizabeth Warren exploded on Powell in now viral content online, pointing out that stopping the runaway train of job losses would be challenging once the unemployment rate increased.
If it does, it could get out of control.
And if Powell continues to increase interest rates, we’re almost certainly headed for disaster in the form of a recession.
Warren claimed that Powell was gambling with people’s lives.
Elizabeth Warren — Source
“You are determined to continue raising interest rates, so I want to look at where you’re headed.
If you continue raising interest rates as you plan, unemployment will be 4.6 per cent by the end of the year, more than an entire point higher than it is today.
Chair Powell, if you hit your projections, how many people working and going about their lives will lose their jobs?
That would be about two million people who would lose their jobs — people who are now making their mortgages.
Two million hard-working people with decent jobs today who you’re planning to get fired over the next year.
What would you say to them?
How would you explain your view that they need to lose their jobs?”
During the testimony, Powell stayed composed and steadfast, stressing that the Fed uses the only available tools to bring inflation under control.
He believes interest rates will continue to rise because inflation will have worse economic effects.
Jerome Powell — Source
“I would explain to people more broadly that inflation is extremely high and it’s hurting the working people of this country badly, all of them, not just two million of them, but all of them are suffering under high inflation, and we are taking the only measures we have to bring inflation down.
Will working people be better off if we walk away from our jobs and inflation remains five or six per cent?
We voted (On interest rate increase), and the median range people voted for was on an interest rate of between five and five and a half per cent (current interest rate 4.5% to 4.75%)
We’ll vote on those again, as we do it four times a year.
The data we’ve seen so far suggests that the ultimate rate we vote on may be higher than December (2022).”
Final Thoughts
Jerome Powell is determined to keep rates high for as long as needed to “get the job done” on inflation, even if it causes further damage to the U.S. economy and the world.
What he’s saying in a few words is that the U.S. will go into recession as a result.
People will lose their jobs.
Your investments in Crypto, Stocks and even the housing market may plummet. Further, then they have already.
But it’s all an unintended consequence.
In the long run, persistent inflation threatens economic well-being more severely than some supposedly short-term pain.
The exchange between Powell and Warren highlights the complex nature of the Fed’s actions and how they impact people’s lives.
Warren argues that job loss costs are too high. At the same time, Powell maintains that his Fed needs to control inflation.
As the Fed’s next meeting approaches, it will be interesting to see how they navigate this delicate balance between controlling inflation and preserving jobs.
And if you’ve invested in Cryptocurrency and stocks, Powell suggests it could be a bumpy road ahead.