Fed Chair Jerome Powell said he’s following through with his promise to raise interest rates and do ... [+]
In a blunt 10-minute speech at the annual Jackson Hole Economic Symposium on Friday, Federal Reserve Chair Jerome Powell said he’s following through with his promise to raise interest rates and do what’s necessary to cool down the economy.
Powell didn't pull any punches, saying that higher interest rates will push down inflation to the Fed’s 2% target level. As a result, the United States will experience slower growth and a weak job market. He freely acknowledges that many Americans will feel the “pain” and lose their jobs.
How The U.S. Got Into This Predicament
During the financial crisis preceding Powell, the Federal Reserve Bank used its monetary tools to prop up the economy and stock market. The Fed’s policies have remained essentially unchanged up until now.
During the pandemic, Powell and the federal government flooded the economy with trillions of dollars to provide much-needed funds to families and businesses. One of the united results was the creation of an everything bubble—ranging from runups in the stock and cryptocurrency markets and venture-funded startups that minted multibillion-dollar unicorn companies.
Powell is in an unenviable position to make the economy worse before it can get better. The Fed chair, along with Treasury Secretary Janet Yallen, mistakenly underestimated the harmful effects of inflation early on, claiming it was only “transitory” and would subside after a while. It didn't, and inflation hit 40-year record highs.
Americans are now paying the price for the bursting of the bubble. The Fed and government’s massive spending programs led to record levels of runaway inflation, creating another tax on people and companies.
How Does Powell’s Program Work?
To dampen the economy, Powell is raising interest rates and withdrawing all the quantitative easing policies that were in place. In a more fiscally restrictive environment, businesses will feel the pain.
They will no longer have access to inexpensive funding and their costs will dramatically increase. One of the intended results is that businesses will enact massive layoffs to cut costs. On a nearly daily basis, companies are announcing layoffs, hiring freezes, allowing attrition without replacement and rescinding job offers.
Powell has been telling the country that he will cause pain by raising interest rates and through quantitative tightening. The problem is that Wall Street and others didn’t take him seriously enough. They were betting that he was bluffing and would eventually ease up.
After an initial shock from Powell’s policies, stocks plunged but later rebounded, as investors thought they were out of the woods. Their misplaced optimism may have been the impetus for Powell's no-nonsense blunt message.
His thesis is that as the economy shrinks, people lose their jobs. As more people lose their livelihoods, they’ll forsake spending money on purchasing goods and services. When this happens at scale, the economy contracts, causing a downward spiral.
For instance, interest rates on buying a home nearly doubled recently. The housing market went from people bidding over the asking price to families walking away because they couldn’t afford to pay the higher monthly mortgage rates. Housing is one of the largest sectors. If people cannot buy homes, there will be less need for architects, real estate agents, contractors, electricians, carpenters, plumbers and other blue-collar professionals.
Wall Street’s Harsh Reaction to Powell’s Speech
The Dow Jones Industrial Average, a bellwether index for the stock market, plummeted more than 1,000 points on the news. Other major indices plunged as well. According to Bloomberg, Powell's bare-bones speech resulted in a massive loss of around $78 billion for the fortunes of some of the world's wealthiest people. To be clear, unless a person sold their securities, it’s only a loss on paper. If the stock market turns around in their favor, the values may increase again.
- Jeff Bezos, Amazon founder and former CEO, lost $6.8 billion.
- High-profile Tesla CEO and almost Twitter boss Elon Musk lost $5.5 billion.
- Bill Gates, the Microsoft cofounder, lost $2.2 billion.
- Business magnate Warren Buffett’s net worth fell by $2.7 billion.
What Workers Need To Do Now
In these challenging times, you can’t be complacent. Take action to protect your job or make efforts to find a safe role elsewhere. You may have to make some sacrifices. For example, you may prefer working remotely, but you should consider going into the office to be seen. Once key managers and executives notice your work ethic and productivity, they’ll view you as indispensable.
Get in touch with members of your network. Ask around to see if anyone has some good job leads or can make introductions to a target company that you’d love to work for. If you decide to switch jobs, ensure the new firm is financially strong and doesn’t have plans to lay off employees.
Update your résumé and LinkedIn profile. Find recruiters who specialize in your space and can keep an eye open for opportunities. Don’t take too much risk with your investments in stocks or cryptos.
When you interview, don't be afraid to ask tough questions. You want to ensure that the position is right for you and that you’re not just jumping on the first offer. Avoid disparaging your former boss, company and colleagues, as it’s a turnoff to interviewers. They’ll assume you’ll talk poorly about them too when you leave.
If you want to remain with your organization, request a meeting with your boss. Tell them you love the company, think they’re great managers, and believe in the corporate mission. Share with them your goals and aspirations. The best outcome would be that your supervisor is relieved the conversation isn’t about quitting, and they’re delighted that you’re committed to the company and want to advance. You can collaborate on a path to reaching your desired role within the firm.
Pay close attention to your finances. Pay off credit cards and other debt, as the interest rate will escalate. Reign in unnecessary expenses. Put aside money, in case you are out of work for a while. Find ways to earn additional income streams. This could include gig work, starting a side hustle or an online business.
Use this time to learn new skills that will make you more employable. There are many online courses such as the Flatiron School, Goodwill, Coursera and Codecademy. You could sign up to learn in-demand skills. The classes can be attended whenever you want. At the end of the program, you’ll receive a certificate, badge or accreditation that could help you advance within your organization or when you’re hunting for a new job.
Try To Stay Positive
It is easy and understandable to become despondent during tough times. You can’t let people pick up on it. Work on your mindset, as you need to remain mentally strong.
Hiring managers and interviewers desire winners who are positive, confident and charismatic. Cast aside any negative thoughts and teach yourself how to come across as likable and charming. When a business conducts layoffs, management is more prone to retain people they like and are comfortable working with, even up against a more experienced colleague.
