FED Warning (US Economy Update On Jobs, Inflation, and FED Rate Hikes)

Guys, the U.S. inflation numbers and the latest jobs report showing the unemployment numbers from the U.S. Bureau of Statistics both just came out last week. And these numbers are going to have an effect on the Fed's next move. Now, on this video, I want to give all Americans a warning about what to expect coming up soon. Now, I want to first go over the core PCE inflation. Then, I want to talk about the latest unemployment numbers and discuss the Fed's next potential move in terms of the Fed funds rate and what all this means for us and what we should be doing. Now, I want to go over all that in this quick video. And if you get anything of value out of this video, do me a favor, smash the like button below. Share this video with friends and family. And if you're a first-time visitor, please consider subscribing to my channel. I really would appreciate it. Now, let's go ahead and jump right into it. Inflation, guys, is the rate at which prices are increasing. And inflation is what causes the loss of your purchasing power, meaning your dollar doesn't go quite as far as it used to because it loses value over time due to inflation. Now, the Federal Reserve is okay with increasing prices, right? Let's get that out the way up front. They're okay with increasing prices, but they only want prices to increase at a rate of about 2% per year. Now, this is the balance that the Fed says that they are continually trying to get at, right? Seeing increasing prices because they want the economy to grow, but also not grow too fast in terms of prices staying at that 2% inflation mark. Now, that's what inflation is. But what is core PCE inflation? That's the measure of inflation that the Fed analyzes to help them make policy decisions, right? What the core PCE inflation does is it eliminates or excludes food and energy because food and energy are two things that go up and down quite a bit, right? They fluctuate a lot. And so, the Fed says, let's leave them out of the core PCE inflation measure so that we get a more accurate view of exactly what's happening with the real rate of inflation, sort of like getting rid of the outliers, right? There's also the CPI inflation, which is the measure of inflation that we typically see when we get a report of inflation on the news or in social media. Typically, they're talking about the CPI inflation. That's different, right? But the core PCE inflation is the preferred measure of inflation for the Fed. Now, I wanted to get that definition out the way before we actually dig into the numbers. The latest core PCE inflation numbers that just came out last week showed an increase of 0.2% in the month of July from the previous year's July, which we call year over year. So, slightly up. And the core PCE inflation was up from 4.1% the previous month to 4.2% last month. Now, that's what we call month over month. Now, we know that the core PCE inflation is obviously down from its peak last summer, right? But it's still well above the 2% inflation target rate that the Fed wants to see. Now, with core PCE inflation remaining stubborn, or what they call sticky, at 4.2% month over month, this sort of leaves the door open for the Federal Reserve to come back in about a few weeks from now when they have their meeting. The Federal Open Market Committee, what we call FOMC, they're the committee in the Fed that decides on this policy when they have their meeting in just a couple of weeks. They potentially, because of these latest core PCE numbers, they have a potential to say, you know what, let's raise the interest rate again by 25 basis points or a quarter of a percentage point. Now, the Fed has come out recently with a lot of press conferences basically saying that we're stuck on 2%. We're stubborn. We're not going anywhere. We're going to continue to target a 2% inflation rate. And so when the Fed says that constantly, it means they're probably going to stick to that, at least for now. As long as inflation remains sticky and stubborn around that 4% mark and a long way from the 2% inflation that they want, they're going to likely continue to raise the Fed funds rate. Now, the Fed funds rate that the Federal Reserve is responsible for raising and lowering to try to control inflation, that Fed funds rate is what commercial banks charge each other for overnight lending to one another. And when the Fed raises that Fed funds interest rate, our short-term lending rates also go up. So that Fed funds rate that those commercial banks charge each other for overnight lending, that ultimately trickles down to us and increases our loan when banks raise the amount of interest they charge us to borrow from them in the short term. So right now, the Fed funds rate is between 5.25% and 5.5%. That's the range of the current Federal funds rate. And that's the highest it's been in the last 22 years. And when the Fed funds rate goes up, banks make money. They make more money because they pass that on to us, the people and businesses that actually want to go and borrow money from banks. So the short-term interest rates go up for us when we want to go get an automobile loan, or we want to get a personal loan from a or our credit card interest rates. All those things are considered short-term loans, and they go up when the Fed funds rate goes up. And that ultimately, many times, it trickles down even to mortgage rates on home loans. Now, keep in mind, guys, mortgage rates on home loans is tied to the 10-year Treasury bond, right? But there is some carryover when the Fed funds rate goes up. So typically, you'll see a shift upwards in the mortgage rates when the Fed funds rate goes up. So money is more expensive to borrow for individuals and for businesses when these Fed funds rates get increased. Now, keep in mind again, guys, in a couple of weeks, we'll have many more answers because that's when the Fed is going to have their meetings. And just so you know, guys, inflation is expected to continue to go down later this year and into 2024. So that's sort of encouraging news that's on the horizon that's out there. But again, we shall see. And it's important to note, guys, that the Fed has raised these Fed funds rates 11 out of the last 12 meetings that they've had. So let's see what happens coming up in the next couple of weeks. Now, let's talk about the latest jobs report. The latest jobs report was actually sort of a surprise. New non-farm jobs have increased by 187,000 with the latest report, which was more than what was expected. Now, just to be clear, non-farm jobs, when we say new non-farm jobs, we're talking about excluding farm workers, active military workers, private household employees and non-profit employees. All those are excluded from this figure. Non-farm jobs refers to private sector jobs and government agencies. Right. So the report came out recently that last month there were 187,000 new non-farm jobs created, which that number is trending down a little bit. And also the unemployment rate rose to 3.8% from 3.5% just a month earlier. Now, this 3.8% unemployment rate, that's the highest unemployment rate since February of 2022. So about a year and a half, guys. So that means unemployment is trending upwards. And also the real unemployment rate rose to 7.1% also. Now, when I say the real unemployment rate, it's a broader measure of the unemployment picture because it counts discouraged workers and it also counts part-time workers who are working part-time for economic reasons. So that real unemployment rate rose 0.4% up to 7.1%. And that's the highest that that real unemployment rate has been since May of 2022. So we see these unemployment numbers both trending upwards. Now, why is the increase in the unemployment rate important? Because it's an indication that the job market in the United States is starting to feel the effects of these increases in the federal funds rate. Now, historically, guys, here's what happens. Here's the tie-in, the thing that connects the federal funds rate and the unemployment rate. Typically what happens, guys, is when the Fed raises the Fed funds rate and money becomes more and more expensive to borrow for individuals and for businesses, then the unemployment rate follows. It goes up too. And the reason the unemployment rate follows the increase in the funds rate traditionally is because when people borrow less money, less people buying goods and services means if a business wants to stay in business, they've got to lower their prices. And when they lower their prices and their expenses, what's the biggest expense a business has? Typically it's labor. So ultimately, if a business wants to stay in business, they lower their prices because they're not out borrowing as much money. Money is too expensive to borrow. They lower their prices. They ultimately have to lay off people. They have to lay off workers. And when they lay off workers, the unemployment rate ends up going up. Now, that's what typically happens in the economy. And that's the tie-in between increased federal funds rate and a higher unemployment rate. That's what we expect. But this post-pandemic economy in the U.S. has been a little different. It hasn't worked quite like that. The U.S.'s unemployment rate, even though the Fed has raised these federal funds rate consistently over the last year and a half, the unemployment rate has stayed really, really strong. And that doesn't happen typically. But now, as the unemployment rate is going up and new non-farm jobs is sort of going down a little bit, it appears that maybe the labor market is starting to weaken just a little bit after these 18 months of increased federal funds rates. Now, here's the bottom line for us. Here's what we need to know and what we need to be doing. All of this means, guys, that we have to continue to be very, very intentional with our money, updating our resumes as well because of this maybe volatile upcoming unemployment situation in America. Start that side gig. Try to look for ways to increase your income, as you've already been doing, and save money for emergencies so that if there is some type of sudden turn or twist or the unemployment rates in America, that you're prepared. You want to be ready. Now, we don't know for sure yet exactly what this increase in the unemployment rate is going to mean long-term. But with unemployment trending upwards, be on the lookout for some possible layoffs. And that's why we as individuals, with our own individual money, have to be prepared. Continue to reduce your debt, especially on things that are going down in value, right? And work to get out of debt if you can while, again, building an emergency fund, that emergency savings for just in case, having those cash reserves. Then you can start making sure you invest and invest in the stock market. That's the other thing we need to make sure we continue to do. Keep dollar cost averaging into the stock market. Don't panic. Don't pull your money out. Don't get nervous. Just keep investing in the stock market. Now, I believe, guys, there's going to be some type of bull run in the year 2024 in terms of the stock market. And you want to be in the stock market before that bull run and during that bull run, right? You don't want to get in late. So, you want to keep investing now in the stock market and be encouraged, right? We see core PCE inflation is slightly up month over month, year over year. But experts are saying and predicting that this is just more of a bump in the road and not a trend upwards, right? So, the core PCE inflation overall is trending down despite this bump in the road. And most important, guys, again, don't buy into the fear that you're going to see in the news, on social media. Keep doing the good things that you've been doing with your money and do your best, again, to be prepared just in case things get crazy. So, I hope I was able to at least shed some light on exactly what's happening right now with the U.S. economy in terms of inflation, unemployment, the Fed's next move, and what it all means to us and what we should be doing to prepare. And guys, stay tuned to this channel where we talk U.S. economy, personal finance, money management, some side gigs, and some real estate to help you on your financial journey to financial freedom. Now, guys, don't forget to smash that like button below for me. Please share this video and please consider subscribing to my channel if you're not already a subscriber. And guys, check out a few other videos right here for more updates on the U.S. economy in plain language. Remember, guys, the best person who's going to take care of the old you is the young you. Guys, take care of yourself and take care of other people. Until the next video, peace.