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It’s harsh criticism, to say the least.
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Consumers have been forced to grapple with rampant inflation for well over a year now. That’s forced many people to raid their savings and rack up scores of costly credit card debt just to stay afloat.
Meanwhile, on March 22, the Federal Reserve raised its benchmark interest rate by 0.25%, marking the second increase of that nature this year. The Fed’s goal in raising interest rates is to encourage a pullback in consumer spending. Once that happens, it can narrow the gap between supply and demand that’s been causing inflation to surge all this time.
The problem, though, is that the Fed’s latest rate hike, coupled with the recent banking industry meltdown, could really deal a blow to consumer confidence and cause a more rapid decline in spending than the central bank wants. And that could be enough to spur a full-blown recession — and cause millions of Americans to lose their jobs in short order.
A move that’s been met with criticism
The Fed’s job is to control monetary policies and do its best to create conditions that lend to a stable economy. Right now, inflation is the Fed’s No.1 enemy, and the central bank has made it clear that it can’t slow down on rate hikes until that situation improves.
However, some experts think the Fed got it wrong with regard to its most recent rate hike. As it is, rate hikes have dealt a blow to banks. And in the wake of Silicon Valley Bank’s failure, the last thing the industry needs is added turbulence.
But it’s not just additional bank failures to worry about. Even before the recent banking industry crisis erupted, many financial experts have feared that rapid rate hikes by the Fed would lead to a near-term recession. And that’s a concern Massachusetts Democratic Senator Elizabeth Warren expressed following the most recent rate hike.
Warren told CNN’s Jake Tapper that Fed Chair Jerome Powell is doing a “really terrible job.” She also went as far as to say that the Fed is “trying to get two million people laid off.” Ouch.
When good intentions go awry
Let’s be clear — the Fed wants nothing more than for inflation to cool down so consumers can feel confident about the economy and things can stabilize. The central bank is not, by any means, looking to promote an uptick in job loss.
But a series of rate hikes in 2023 might lead to that scenario, even if that’s not what the Fed wants. That’s why workers need to be really careful right now, and take steps to shore up their finances while they’re still gainfully employed. That means boosting savings account balances and, if possible, chipping away at high-interest debt.
The Fed is not in the business of encouraging layoffs, but it does want consumer spending to decline. And some experts feel that a dip in spending is apt to lead to a larger number of lost jobs — it’s just inevitable.
Ideally, the Fed will manage to strike a balance that cools inflation without driving the economy into a freefall. But only time will tell how things actually pan out.
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