Perspective: With Fed rate increases, the economy’s free ride is over
Not since the days of former Fed chairman Paul Volcker combating inflation 40 years ago by tanking the economy to wipe out double-digit inflation have we seen anything remotely resembling what the Fed is doing these days.
Finally, many savers trying to live off their investment income were forced into the stock market because yields on safe, interest-bearing investments, such as money market mutual funds and short-term Treasury securities, had fallen sharply because of the Fed’s rate cuts. The increases have also hurt the stock market because they not only threaten to reduce corporate earnings but the higher interest rates decreased today’s discounted value of those lower projected profits.
However, barring some sort of economic miracle, unemployment seems likely to rise, slowing down wage inflation and reducing the need for price increases but inflicting serious pain on people who find themselves out of work.
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