In an effort to curtail inflation that stands at a four-decade high, the Federal Reserve last week approved the largest interest rate increase since 1994.
The Fed is trying to engineer a “soft landing” for a U.S. economy supercharged by roaring consumer demand — though there are some signs that’s abating — and too few goods.
This is an Opinion
The good news for workers is that unemployment is low and wages are rising. The bad news is that wage increases aren’t keeping up with higher costs, resulting in what is effectively a wage cut.
The good news for employers and industry is that demand for goods and services is strong. The bad news is that costs to produce those goods and services are also soaring.
The culprits are many and interlinked: the COVID-19 pandemic, the vast amount of stimulus money pumped into the economy to soften the effects of the pandemic, and the war in Ukraine, which is affecting energy and food costs.
Last year was a good one for private companies in Arkansas, as Contributing Editor Gwen Moritz’s story makes clear: “For most of the businesses on this year’s list of Arkansas’ 75 largest private companies, top-line revenue in 2021 was significantly better than in 2019, before any of us had heard of COVID-19.”
This year? Well, the Fed is using the tools it has, including raising interest rates, to bring down inflation while trying to avoid a recession.
Higher interest rates make holding debt more problematic than ever. Smart companies, like smart consumers, will do whatever it takes to eliminate or limit their debt load. The smartest will have accumulated a cash cushion while times were good.
To quote Bette Davis in the movie classic “All About Eve”: “Fasten your seatbelts. It’s going to be a bumpy night.”