After several days of speculation, Federal Reserve Chairman Powell raised interest rates 3/4’s of a point, in a determined effort to choke off inflationary forces. Although this shows how determined the members of the “Fed” are in trying to bring inflation back under control, concerns are starting to grow, that this may also produce a business recession in early 2023.
The stock and bond markets decided to look at it in a positive light, breaking the 5 day slide into Bear Market correction levels, with a 350 point rally. How long this Powell euphoria will last, is a significant question. We think the odds for a “soft landing” are not very good, so we remain cautious.
Raising interest rates may put a temporary bandage on the inflation problem, but as other Fed Chairmen have found, raising interest rates, is not popular with the public, nor with the political party in power,
Also, the forces of inflation have been building up over the past 10 years, thanks to the Fed’s Easy Money Policies, combined with record high levels of Government, Corporate and Consumer Debt.
The big question asked at Powell’s news conference: Can inflation be contained without causing a great deal of economic pain? Powell didn’t have an answer. Stay tuned.