Jerome Powell just announced another round of rate hike increases to quell inflation.
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Inflation has reached a record high decades after months of ‘quantitative easing’ to rescue the economy during the COVID-19 pandemic.
Therefore, in the Fed’s attempt to cool down inflation, there will be another round of 75 basis points of rate hikes at a time when people are starting to expect a pivot in economic policies.
As expected, stocks slid upon the announcement ending the day at 2.5% lower.
Powell has stated that the goal of the Fed is to meet the 2% inflation target. But, unfortunately, that is a far cry from the current inflation rate of 8.2%. Thus, he suggested that the rate hikes may continue for a while.
Consumers continue to suffer
Inflation has wreaked havoc not only in the US but in other countries as well.
Developing countries are faring far worse. Households are struggling with the prices of everyday items such as petrol and food.
At the same time, those with floating loan interest rates will have to fork out more of their monthly income to pay.
Countries not using the US dollar face depreciating currencies as the US dollar strengthens against them.
This is despite the DXY index, a measurement of the strength of the US dollar against other currencies, dropping upon Powell’s announcement of further rate hikes. However, the index surged higher right after.
A stronger US dollar is not suitable for the global economy as it would cost more for countries that owe money to the US. At the same time, US dollars will cost more, making international trade more expensive.
All of this contributes to the average individual's higher cost of living. I’m starting to feel my budget tightening.
So what am I doing?
I am an average consumer. I have a 9–5, a wife and a newborn. I still live with my parents because Singapore is just like that.
Thus, I do not have a mortgage or any significant bills. However, that would come soon shortly.
Thus, I would consider myself fortunate to be able to spend a significant portion of my income on high-quality products, convenience and food. However, I can feel my budget tightening.
I go to the supermarket frequently, and prices show a clear upward trend. Fruits and vegetables cost more, while meats are charged at a premium.
At the same time, takeouts are becoming more and more expensive. A meal that once cost $6 before the pandemic would reach almost $9 now.
As an average consumer, I’m doing the following:
Finding cheaper alternatives has become a daily mission for food and essentials like clothes and baby toys. I had to switch my budget around too.
I increased my budget for essential expenditures from $600 to $1000 per month.
At the same time, I removed my budget to spend on frivolous things. I also aim to remove any dependence on conveniences such as food delivery services and taxis.
I maintained a consistent savings and investing rate of about $500 each. I continue to set aside money to invest in the S&P500 and cryptocurrencies. However, a significant portion is still held in cash.
I continued to explore new business prospects and invested a significant amount of money into a new business. I would probably launch it in late December this year.
Finding new income streams remain crucial in this economy. Scared money doesn’t make money.
Conclusion
Moving forward, we should expect more pain to come. Unfortunately, the economy is in a downward spiral, and there is no foreseeable good news.
As average consumers, we must tread the pathway forward lightly and learn how to manage our finances smartly.
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