Be Well: What the Federal Reserve's Rate Hike Pause Means for Economy

<div class="block">Marty Cantor, CPA and economic development consultant, joined Cheddar News to talk about what the Federal Reserve&#39;s decision to pause rate hikes after 10 consecutive increases means for the economy. &quot;I definitely believe there&#39;s going to be rate hikes. My thinking is it will probably go up in July,&quot; he said. </div>

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After raising interest rates 10 times in a row, the Federal Reserve decided to pause its rate hiking campaign to see how the economy responds. So the big question is, how will we all be affected? So here with the answer is Marty Can CPA and economic development consultant. So I know you weren't surprised. This is exactly what you kind of thought, Jerome Powell and the fed was going to do. Yeah, the time is right to just to see how the uh what their policies are impacting. Although we know that the data is really inconclusive at this point, there are a lot of anomalies coming out in the data. You know, the fact is that we're creating jobs, but the jobs that we're creating are really replacing the ones who've been retired. You know, we, we have the highest increase in unemployment from 3.4 to 3.7 as a percent. Since before the pandemic, there's over 10% increase in unemployment. But on the other side, employers have increased the amount of post the jobs from 9.6 million to over 10 million. About 10.1 million. They dropped 2 million over the earlier part of the year. So those inconsistencies are really causing concern with the Fed. And I think it's more not, not so much of, let's see how the impact of our policies are, but let's try to get a trend that we can deal with. Right. And so far the trends are really inconclusive. I mean, we have a CPR consumer price index and the producer price index, which is really the wholesale prices. They're both at the same level about 5% and they keep on fluctuating up and down. So there's no steady uh uh firm data out there to say where we are, we still, the FED still wants to get down to 2% benchmark for inflation. We have businesses. The net income is has been dropping for the past two quarters and it's expected to go negative in, in the the second quarter of this year. Domestic product is dropping. So something is happening that their policies are impacting. However, the the the underpinnings when you peel away the onion skins to find out what's really going on in the economy. I think the fed is, is heavy, has to get more data in order to make the correct uh uh a correct decision because when you take a look at that core inflation, so you take out the food, you take out the energy, it's not really cooling off quite enough. So he really, you know, Powell really left the door open for the possibility of another rate hike at the July meeting. Oh, I definitely believe there's gonna be rate hikes and I definitely believe, uh, uh, my thinking is that it probably go up in July. We are not, we're going to be in this inflationary economy going into the presidential election year. The bad news for the candidates is we could, we could tip into recession and that's what he doesn't want. Right. Once, once the jobs posting come back down and businesses stop hiring, then we can go into a recession and that's something that Powell really, really wants to avoid. Absolutely. And we know this affects everybody at home when it comes to their mortgages, when it comes to their credit cards, when it comes to their car loans. Yes. But we're, we're seeing right now that, you know, home sales are, are, are decreasing and the prices are coming down however, because of the lack of inventory because people can't afford to sell a house and then buy another one because, because right now there's a lot of people sitting with 3% mortgage loans and now they'd have to be paying close to seven if they go somewhere else. So the inventory is low. Housing prices are still high, you know, and, and that's going to impact, you know, with the mortgage is food. Same thing. Transportation. Uh, uh, the only good news is that the, uh, gasoline costs are low and the transportation costs are low to keeping food prices from skyrocketing. But let's talk about consumer spending. It doesn't, you know, it seems like people are still out there and spending money. Well, they are and that's why, I mean, we keep on talking about the, the, the 17 trillion in consumer debt in the last quarter. We keep on talking about that. Yeah, people are still spending and it's not because they have money because you've got a 4% raise, the average raises. But inflation is 5%. So, in effect, the real income that you get is zero. But people are now spending and they're using their debt and that's the only thing that's really, uh, the economy because retail and consumerism is 70% of the economy and, and unless that gets curtailed and ratcheted back and that's what the Fed wants to do, we're still gonna have this overheated economy with too many dollars chasing too few goods. But when it comes to making a budget, anybody that has those student loans, they're not gonna be able to be spending money the way they were because they're gonna have to start to pay those back. They're gonna unpause that. Yeah, there's 43 Americans who have, uh, 43 million Americans, 43 million Americans who have, uh, who have student loans, uh, 20 Americans, uh, 23 20 million Americans. I'm sorry, could be impacted by, by the pause in student loan payments, you know, and, and the uh the forgiveness that the uh president wants to bring in. But the big news is, is that 43 million people going to have to adjust their family budgets to, to accommodate repaying those student loans. And that starts in September. Right? Because you know this pause has been going on since March of 2020. That's right. People have gotten used to it not having to pay back that student loan and, and their, and spending. Now you might very well find that consumer spending will come down in the next quarter in the third quarter or possibly the fourth quarter because the student loans will take money out of consumers pockets to spend. And that, and that could really, and that's really what Powell has to pay attention to as well. And so there are too many moving parts in this economy and there's just not enough hard data and hard answers for the fed to deal with. So you think July meeting the fed raises rates again? If I was him, I would do it because he's not getting the results. He wants, uh, producer price index is still going up, hirings are still going up, post, the jobs are still going up. He's got to slow down this economy. I think July, the interest rates go up. Right. Marty, thank you as always for always having such great information for us. 43 people, 43 people. Right.