The Federal Reserve’s war on inflation is going to clamp down on consumer spending, eventually.
After the Dow’s initial burst higher, investor sentiment waned and Blue Chip stocks traded up 0.3 percent, or 103.60, to 34,108.64.
While this macroeconomic back and forth pitting interest rates against price increases can sound esoteric, higher prices are already hurting consumers now and higher interest rates are going to start hurting them more.Powell and his Fed colleagues are pushing interest rates higher to cool the job market, which in turn cuts back onRetail will just be collateral damage as the U.S. unemployment rate rises from a historically low 3.7 percent and as fears of recession loom. .
Last week, John Idol, who is chairman and chief executive officer of Versace and Michael Kors parent Capri Holdings,“We definitely are concerned about next year,” Idol said. “And we don’t think we’re going to see it probably in this quarter or maybe a little bit into next quarter. But we think kind of the back half of next year, we’ve got to be cautious about what happens to the North American consumer, which has been very resilient.
The strong consumer balance sheet has been a theme headed into the back half of the year — signaled out by retailers as a point of strength. But it’s also a scenario that could keep people spending even as the Fed clamps down, prompting the central bank to take more drastic action with a more dramatic hit to the economy. “The smart economists know what the channels are and they know what the implications…are going to be,” Hoyt said.
Jack Kleinhenz, chief economist at the National Retail Federation, said: “People are spending about the same, a little bit less, than last year. In some sense, people are just going to stay the course — ‘I’m going to keep spending, my income is coming in, I feel good about my job, so I can afford to put a little more on the credit card.’ At this point, we’re not seeing household consumer credit in the yellow zone.” As Kleinhenz put it, wardrobes have some “flexibility” in them.
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