Jay Powell Needs Investors to Lose Money

Seeking to quell inflation, the Federal Reserve has raised its benchmark interest rate from near zero to above 3% in record time. And at its most recent meeting, on Sept. 21, the central bank projected it would add an additional one and a half percentage points in the coming months—promptly sending markets into a nosedive.

We’ve officially entered a very different financial climate, where prudent investors may want to reassess where they put their money. The Fed’s principal policy lever is interest rates; when they go up, the value of future cash flows goes down—hurting assets from stocks and bonds to housing and many currencies. So when Fed Chair Jerome Powell tells you he wants to reduce inflation by raising rates (aka tightening), he’s telling you the central bank needs investors to lose money. The goal is for those losses to seep into the rest of the economy when capital investment and consumption decline, slowing growth, demand, and—ultimately—inflation.