Fed rate hikes amid record inflation can 'save the middle class': Investment expert
Inflation soared 7.5% in January
Luke Lloyd, investment strategist at Strategic Wealth Partners, argued on Thursday that rate hikes could "save the middle class," which he called "the backbone of the economy," and stressed that they are "needed to combat inflation."
Lloyd made the argument on "Cavuto: Coast to Coast" a few hours after it was revealed inflation surged more than expected in January, notching another four-decade high as strong consumer demand and pandemic-related supply-chain snarls fueled rapid price gains that wiped out the benefits of rising wages for most Americans.
The consumer price index rose 7.5% in January from a year ago, according to a new Labor Department report released Thursday, marking the fastest increase since February 1982, when inflation hit 7.6%. The CPI – which measures a bevy of goods ranging from gasoline and health care to groceries and rents – jumped 0.6% in the one-month period from December.
Economists expected the index to show that prices surged 7.3% in January from the previous year and 0.5% on a monthly basis.
The eye-popping reading – which marked the eighth consecutive month the gauge has been above 5% – could amp up pressure on the Federal Reserve to kick off its interest rate increases next month with a half-basis point hike. Raising interest rates tends to create higher rates on consumers and business loans, which slows the economy by forcing them to cut back on spending.
Fed Chairman Jerome Powell has left open the possibility of a rate hike at every meeting this year and has refused to rule out a more aggressive, half-percentage point rate hike, but said it's important to be "humble and nimble."
"We’re going to be led by the incoming data and the evolving outlook," he told reporters during the central bank's policy-setting meeting last month.
A rate increase would mark the first since December 2018.
Investor jitters over the possibility of faster rising interest rates to combat inflation contributed to the recent market volatility.
Lloyd argued on Thursday that he thinks rate hikes are "actually a positive thing."
"We have got to combat this inflation because if we let inflation run too hot [for] too long, then we have an issue with the middle class," he continued. "If we hike interest rates, we save the middle class."
MOST SMALL BUSINESSES SINCE 1974 ARE HIKING PRICES TO OFFSET INFLATION
Rising inflation is eating away at strong wage gains that American workers have seen in recent months: Real average hourly earnings rose just 0.1% in January from the previous month, as the 0.6% inflation increase eroded the 0.7% total wage gain, according to the Labor Department. On an annual basis, real earnings actually declined 1.7% in January.
Price increases were widespread: Although energy prices rose just 0.9% in January from the previous month, they're still up 27% from last year. Gasoline, on average, costs 40% more than it did last year. Food prices have also climbed 7% higher over the year, while used car and truck prices – a major component of the inflation increase – are up 40.5%. Shelter costs jumped 0.3% for the month and 4% year-over-year.
The White House has blamed the price spike on supply-chain bottlenecks and other pandemic-induced disruptions in the economy, while Republicans have pinned it on the president's massive spending agenda and his energy policies targeting the oil and gas industries.
Lloyd stressed on Thursday that when it costs more to go to the grocery store and the gas station, "people’s pockets get eaten up very quickly."
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He noted that wage increases are not rising enough to meet the accelerating inflation and that is what "really concerns" him.
He then argued that 2022 is the year to determine how strong the middle class really is.
"We saw this huge influx of money over the past two years, is that sustainable?" Lloyd went on to ask.
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FOX Business’ Megan Henney contributed to this report.