Will Fed Raise Rates Sooner Than Expected?

There are several economists out there predicting that rising inflation will push the Federal Reserve to raise interest rates sooner than project.

In fact, half of the Fed Board was talking about a rate increase in 2022 instead of the previously telegraphed 2024. But, does that mean The Fed will raise rates sooner than previously stated?

Inflation Isn’t Coming

All of this is predicated on inflation rising. The concern right now is that prices have been rising this year. This is all true, but this is October and that means the holiday shopping season is upon us, and chances are it won’t look very good come January.

We’ve already seen the job reports showing that job growth is slowing despite a supposed worker shortage. Unemployed people spend a lot less at Christmas. But, there is more than that. Employed people who know unemployed people spend less as well due to a fear that they could soon be unemployed as well.

Add to that reports that there are going to be supply chain problems, and that container ships have to wait excessive times to get their cargo unloaded by dock workers on the west coast and you end up with a lot of retailers looking to report slower Christmas sales in January. When that happens, all of the folks out there today worried about a hot economy producing too much inflation will turn into chickens screaming about the sky falling.

Where does that put us?

The Fed has said it won’t raise interest rates this year, and it certainly won’t do it heading into the holiday shopping season that this country depends on so much.

If and when bad news comes out in January, they won’t dare raise rates into that negativity.

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If poor holiday sales cause a drop in stock prices (they will) then those clamoring for an increase now will go silent. No one in the shortsighted world of finance would deliberately hurt the near-term prospects of the stock market, no matter how beneficial it might be in the long run.

Add it all up, and you aren’t getting a rate increase in the first half of 2022.

Keep working the math, and it’s likely that the bump the poor holiday season causes will knock those prices off as well, which means no inflation. No inflation, no rate increase.

Cost of Living Adjustments

Good news for those who get cost of living raises or adjustments. The timing when inflation gets calculated here toward year end is almost perfect to catch the high-water mark, which means your new amounts for next year will be more valuable than intended.

For example, Colorado calculated out the new minimum wage in September 2021, which is adjusted based on the Colorado Consumer Price Index. The new Colorado minimum wage for 2022 will be $12.56 up from $12.32, an increase of 1.9%, just under the Fed’s inflation target of 2%. (Colorado prices have risen faster due to population growth). Even if inflation falls back after January, the new minimum wage will be locked in giving low-wage earners not just more money in pay, but money that goes further with lower costs. That’s a pretty solid win for workers.

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For pretty much everything else, it’s time to stop worrying. Nothing is going to change until at least July of next year, and then only if there is a robust recovery under way.

minimum wage colorado 2022

Colorado’s Department of Labor and Employment (CDLE) is responsible for calculating the new minimum wage each year.

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