Friday's release showing inflation at a 41-year record in May dashed all hopes that it had peaked in March.
The Federal Reserve is under more pressure than ever to rein in inflation by hiking interest rates, a practice that affects almost every aspect of the average American's finances The central bank is expected to raise its rates next week. It's getting calls to be more aggressive.
The form that aggression could take is still up for debate, but one thing is clear: Inflation is getting worse at a time when it is supposed to have peaked, and the Fed will have to be even more stringent if it is to solve the problem.
A tougher stance is bad news for a lot of the things that precede a recession, such as stock prices, mortgage rates, and credit cards.
Markets are not fond of uncertainty. Clear outlooks are preferred by investors.
The Friday inflation report caused a sell off on Wall Street. The higher-than- expected print confirmed that the Fed will have to slow the economy even more if inflation gets out of hand.
The central bank will reveal its latest policy move on June 15th. Markets will be weighed down by uncertainty around the path of inflation, future Fed actions, and whether policymakers will slow the economy too much. The balances in the broker accounts are off their highs. Stock moves will get even frothier as the Fed ramps up.
Treasury bonds don't offer the same appeal as stocks in a low-rate environment. Many of the names that thrived when rates were near zero will face scrutiny as the Fed takes action.
Assets that are riskier could see a bigger plunge. Friday's decline in Cryptocurrencies pulled valuations even further from their peak. As investors prioritize safe-haven assets and brace for slower economic growth, they are likely to pull cash from uncertain markets.
Borrowing costs are affected by the Fed's rate. Interest rates on all types of products are going to go up.
Potential buyers will not be able to hope for a break. Bidding wars and a nationwide inventory shortage boosted prices at a historic pace, as the housing market was almost impossible to access.
The Fed's rate increases won't make homes affordable. The average rate on a 30-year fixed-rate mortgage is going up. Financing a purchase will be more costly for potential buyers.
The trend of car loans is similar. Rate hikes will translate to higher prices for auto purchases since most vehicles are bought with financing plans.
Credit card debt will be more difficult to pay down. According to Ted Rossman, an analyst at Bankrate, the average card rate could rise to a new record high above 18%. Paying off a balance could take longer and cost more in interest for people who only make minimum payments on their credit cards.
Economic circles fear that the Fed is stuck because of higher consumer costs. If too little is done to counter inflation, it will allow prices to go up even more. If long-term inflation expectations go up, inflation could become permanent.
Economic growth could be slowed to a halt by acting too aggressively. Companies might have less revenue if demand disappears. Much of the recovery from the Pandemic-era would be undone by that.
Powell said the Fed will prioritize cooling inflation over labor market recovery. Powell said in a press conference that the Fed can't allow inflation expectations to be un-anchored.
The topic of whether the Fed can achieve a soft landing in which inflation slows and unemployment is low has been debated for months. The target the Fed is trying to hit is Shrinked by the May inflation reading The central bank needs to hit the brakes on demand with even more force because of the risk of a recession.
Shah said that the Fed's price stability resolve is going to be tested. Even though the economy is struggling, policy rate hikes will need to be aggressive.
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