Feeling a little scared about the economy? You’re not alone

And while he applauds the new stronger-than-expected job growth data released on Friday, there’s very little President Joe Biden or anyone else can do, but sit and watch like the rest of us.

The Fed’s rate hike of half a percentage point is significant, which helped push stocks lower on Thursday. But the target federal funds rate, which now sits at 1%, is still historically low and has not exceeded 5% since before the Great Recession.

CNN’s Matt Egan writes that the Fed could raise rates to at least 3% by the end of the year to fight inflation. He notes that the rate peaked at 22% in 1981 — which sounds bonkers today — as Fed officials went over scorched earth to tackle runaway inflation at the time.

Higher rates could benefit savers, he writes, and challenge the stock market, which he says “has become accustomed to – if not addicted to – easy money.”

How will the higher rates affect you?

Mortgage rates rose 2 percentage points from less than 3% a year ago to more than 5%, the highest since 2009, CNN’s Anna Bahney reports.

This is likely leading to some buyers leaving the market and for others creating a mad rush to get something and lock in a rate. Housing prices, in theory, nice… finally.

RELATED: How to Take Advantage of Rising Rates

Raising interest rates to fight inflation

Higher rates will make borrowing more expensive, even if the rise is the Fed’s answer to everything else that is already getting more expensive. This is the hard remedy that Fed economists have prescribed to calm inflation caused by a chain reaction of factors:

  • Nodes in the supply chain that are not recovering.
  • Energy and food market problems created by Russia’s war in Ukraine.
  • New Covid-19 lockdowns in China.

Presidents are blamed

None of these explanations will stop Biden from laying blame. A majority of American adults in a new CNN poll say the president’s policies have hurt the economy, and 8 in 10 say the government is not doing enough to fight inflation.

And it will do no good for Biden to simply focus on the many bright spots in the US economy — like an extremely low unemployment rate and the continued comfort that millions of Americans feel about quitting their jobs.

It’s the dichotomy for Biden and policymakers. There is a feeling of dread, but a lack of concern. Americans are spending money, feeling comfortable enough to quit their jobs, and the housing and auto markets have yet to begin to crash.

The economy is still running

In his recent article on the stock market’s worst start to the year since 1939, CNN’s Paul R. La Monica wrote, “Stagflation concerns persist, but so far it’s all ‘flation’ and no ‘deer'”.

Wait what?

He writes: “Although confidence and sentiment measures have declined due to inflation concerns, retail sales remain strong, a phenomenon some economists have dubbed ‘revenge spending’ after two years of a brutal pandemic. And When it comes to corporate earnings, actions speak louder than words.”

There are signs that job growth, however, has started to slow, despite preliminary data released Friday by the Bureau of Labor Statistics that the economy added 428,000 jobs in April.

What Matters Term of the Day: “Double Dip Recession”

From another La Monica story:

Some economists and market strategists now fear that a brief recession may be inevitable due to these early rate hikes.

But if the Fed takes a victory lap too soon and slows the pace of future rate hikes, the risk is that inflation will come back in full force and lead to another longer and deeper slowdown.

This is the dreaded double-dip recession scenario. In 1980, the economy experienced a short recession that lasted only six months, followed by a 16-month downturn that stretched from the summer of 1981 to the fall of 1982.

CNN’s Stephen Collinson writes smartly about the difficulty for Biden, including the Democratic Party faces a very bad November if Americans are soured on the economy as they vote in the midterm elections.

White House says look at economy with more nuance

On CNN’s “New Day” show, Brianna Keilar asked Jared Bernstein, a member of Biden’s Council of Economic Advisers, if the president was out of touch with the economy.

“Not at all,” he said, saying Biden would mention inflation whenever he spoke about the economy.

However, Bernstein argued that the numbers suggest people are doing better than the dire perception.

“We have multiple things going on at the same time,” Bernstein said. “We have households that are in extreme malaise, which the president is very mindful of when it comes to inflation. But we also have those households that are hitting this period from a position of strength based on their balance sheets, based on the labor market.

What is Biden doing?

Bernstein argued that Biden was doing everything he could to dampen inflation by smoothing the supply chain with changes to US ports, releasing oil from the US Strategic Petroleum Reserve and more.

None of these efforts, on their own, will solve inflation, which is Biden’s problem. He can do all he can, and still may not feel like you’ve accomplished much.

This story has been updated with additional information.


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