The US Federal Reserve's latest interest rate hike is intended depress the job market as a means to control inflation, says a wealth manager.
The US Federal Reserve raised its basic bank lending rate on Wednesday from 5.25 percent to 5.5 percent — its highest level in 22 years.
Market expert David Tawil told Sputnik that the pain would be widespread, as up to 70 per cent of homeowners were still paying off their mortgages.
"Folks have 30 year mortgages, or whatever is remaining of those 30 year mortgages, on their current homes at rates that we've seen historically were incredibly low, two and three percent. And if those people would now go to purchase a home and have to borrow in order to do that, they would probably be in the seven to eight percent range," Tawil explained. "That's a massive difference in terms of monthly payments on the same amount of of of borrowing."
He pointed out that Fed Chairman Jerome Powell's newfound concern for controlling inflation — at the expense of Americans' jobs — was not evident during the COVID-19 pandemic.
"We now know very well that inflation was rampant through the pandemic," Tawil said. "And then for 18 months thereafter that the government continued to print money, go ahead and give all sorts of handouts in terms of loans to businesses and other types of subsidies, whether it be through healthcare or tax benefits and direct paychecks."
"That led to a spending spree by consumers and that drove prices quite high, and that led to the inflation rate that we ended up with, which is what the Fed is now reacting to, trying to get that inflation rate down to two per cent," he added. "At one point, we were as high as eight percent."
Paradoxically, the Fed's other worry is job figures which show record low levels of unemployment.
"We have lowest unemployment rate in history," Tawil stressed. "And that's not particularly a good thing because a full, full maximized job market necessarily leads to inflation because everybody is making money and everybody is spending money and therefore inflating prices."
The Fed is therefore aiming for a "more normalized unemployment rate, probably somewhere around four to five percent" he said.
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