YouTube finance expert Jaspreet Singh of “Minority Mindset” recently offered his take on the recent U.S. Federal Reserve Open Market Committee (FOMC) meeting that took place Sept. 20.
The Federal Reserve voted not to increase interest rates this time around, but told the American public to expect one more interest rate hike before the end of the year.
“Essentially,” Singh said in his video, “[Federal Reserve Chair Jerome Powell] wants to see convincing evidence that inflation is actually down and going to stay down.”
This hasn’t happened as quickly as the Fed expected, primarily due to the resilience of the American consumer, Singh explained. “The reason the economy is staying hot is because people are still spending money.”
Quoting statistics from CNBC, he noted that consumers make up roughly two-thirds of all economic activity in the U.S. In spite of savings diminishing and credit card debt growing — to the tune of $1 trillion dollars in total consumer credit card debt — Americans continue to spend money.
“You can start to see dynamics of what’s good for one party, may not always be good for a different party,” Singh explained. In this case, continued consumer spending is keeping economic growth strong. But it’s wreaking havoc on Americans’ savings accounts and potential future financial security.
“As an individual, saving and investing money is good for you,” Singh pointed out, “but not so good for the economy… The economy needs you spending all your money because that keeps the consumer resilient and that keeps the economy growing.”
Interest Rates and the Job Market: The Connection
Raising interest rates should, ultimately, tighten credit and slow economic growth. Doing so will then lead to a reduction in salary growth, higher unemployment, and less spending. That will reduce consumer demand which will, finally, stem inflation. But it’s taking longer than the Fed has expected, Singh pointed out.
“In order to solve this inflation problem, it comes with pain,” Singh said. He pointed out that job losses and less pay growth could help stem inflation.
“Potentially, less growth in job incomes wouldn’t be such a big deal, as long as the prices of things weren’t growing so quickly,” he said.
Economic Growth Predictions from the Fed
Warning people to take the Fed’s predictions with a grain of salt (because they always change), Singh shared that the Fed has upwardly revised its predictions for economic growth through 2024. “They predict the economy to grow faster than expected because of the resilient consumer.”
The latest figures show growth of 2.1%, which was more than double their predictions from June. By 2024, the economy should continue growing at a rate of 1.5%.
“They have a strong outlook on the economy,” Singh concluded. “They think these higher interest rates are going to stay higher for longer. They think these higher interest rates are going to have a lower impact on the economy, but a stronger impact on inflation.”
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