Stock losses deepen as Wall Street braces for ‘higher for longer’ interest rates: Stock market news today

Must read

TILL LINDEMANN Streams New Solo Single “Sport Frei”

Rammstein frontman Till Lindemann is now streaming his new single "Sport...

Is LIVING COLOUR Re-Recording Stain?

Living Colour appears to be re-recording their 1993 album Stain. The...

BRENDON SMALL Talks About The Advice He Received From KING DIAMOND, How He Got Into Guitar & Much More 

Frank sits down with Brendon Small to discuss the new Metalocalypse...

The most important word for the Fed is ‘real’

As interest rates have risen, most investor and public attention has been on the absolute level of rates.

And with good reason.

The fed funds rate is at a 22-year high. Mortgage rates are north of 7% for the first time since 2002. And interest rates on credit card debt are at 38-year highs.

But the Federal Reserve isn’t just looking at these eye-popping headlines in thinking about its next steps, but also at where these rates stand when adjusted for inflation.

Referred to as “real” interest rates, the Fed’s aggressive rate hikes earlier this year pushed real rates into positive territory for the first time since 2019.

Looking at the fed funds rate minus the annual change in core PCE — the Fed’s preferred inflation measure — we can see that real rates haven’t been positive for an extended period since the mid-2000s.

What we think this chart also gets across is that by saying things like “higher for longer,” what the Powell Fed is really trying to do is prepare investors for a future that looks more like the Fed’s past.

Throughout the 1980s and 1990s, for instance, real rates were almost always positive. The initial push to bring real rates into positive territory over these decades was the Paul Volcker-backed moved to crush persistent inflation, it was ultimately a long period of economic growth that kept real rates positive.

And strong economic growth is exactly what Fed Chair Jerome Powell pointed to on Wednesday as the catalyst for the Fed raising its interest rate forecasts for the coming years.

And though it is somewhat obvious to note that higher interest rates can only be sustained by a strong economy, recall that what began the current regime of rising interest rates was inflation that surged coming out of the pandemic. Inflation that was driven in part by supply chain problems, in part by strong economic growth coming out of the pandemic, and in part by consumers having excess cash in the wake of a highly unique fiscal response to the pandemic.

But as the economy transitions away from pandemic-era trends, so too does economic and monetary policy move off these benchmarks.

For investors, the renewed focus on real rates from the Fed means the central bank can get policy tighter by two paths — either rates rise, or inflation falls while rates stay steady. On this count, the Powell Fed now has more flexibility.

More articles

Latest article

28 (Early) Amazon Prime Day Fashion Deals You Can Shop Right Now

While Amazon Prime Day officially starts on July 11, there's major deals that you can already shop. And we're majorly excited in particular about...

34 Songs To Remember How Good 2003 Was For Metal

Two decades have passed since 2003 and a lot has changed...

Amazon Stock Jumps on Earnings Beat. Cloud Results Were Good Enough.

Updated Oct 26, 2023, 4:29 pm EDT / Original Oct 26, 2023, 2:00 am EDTAmazon shares rose in late trading Thursday after the company...

Capital Status Brings Luxury Marketing for Brands, and We LOVITT!

Luxury marketing has developed and evolved with the consumer’s changing preferences and has seen different products rise in popularity. There is a striking dissimilarity...

Tap Into The Story Of The Soul: Tanja Subotic On Human Connection Through Art

An artist at heart, creative visionary Tanja Subotic now channels her gifts to heal and inspire. An intuitive writer, storyteller, and author, Subotic aims...