Big Fed Hike on Tap After Inflation Surges

The battle against inflation is going to take a while. 

Market watchers and economists hoped the latest consumer price reading would show inflation on a downward trajectory, providing an indisputable signal that the peak is behind us.

They got a nasty surprise on Tuesday when the August data came in higher than expected. Prices climbed 8.3% year-over-year and rose 0.1% from July, while markets were expecting a monthly decline. 

That sent stocks crashing the most since the pandemic roiled markets in 2020, with the S&P 500 losing more than 4% and the Nasdaq 100 plunging more than 5%. Tuesday’s plunge erased $93 billion from the fortunes of America’s richest billionaires, and yesterday’s small rebound didn’t help them make up much ground.

“This was a huge shock to the market because we'd seen this rally reflecting expectations that inflation was going to cool quite significantly in August,” Fiona Cincotta, senior financial market analyst at City Index, told me. “The market has really had a bit of a reality check.”

One of the largest culprits behind the price increases? Rent. In fact, shelter costs notched their biggest monthly jump since 1991. It could get even worse as more leases turn over and incorporate elevated market prices.

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 — Claire Ballentine 

WealthScore

For those trying to gauge where they stand financially, we recently launched WealthScore, a tool that allows users to get a financial health checkup by answering questions about their age, household size, income, spending, debt and assets. For the next few weeks, we’ll be sharing tips that correspond with the seven personal finance benchmarks measured by the tool. Here’s our latest, for those trying to shore up their finances in these uncertain times:

Build an emergency nest egg. A nest egg you can tap in an emergency can save you from needing to take on credit card debt or another expensive kind of loan at a time when interest rates are rising. The rule of thumb is to sock away three to six months’ worth of expenses, so the first step is knowing your all-in monthly costs —rent, payments on auto loans, student loans, insurance, food, transportation, health care (which will no longer be subsidized by an employer if you lose your job), and so on.

A 2020 study found that households that managed to save liquid assets of $2,452 at any point in a four-year period were significantly less likely to suffer “extreme hardship” three years later. Financial planners often want people nearing retirement to have an even bigger nest egg in cash or cash-like accounts in case the stock market takes a prolonged dive. If people need to repeatedly sell stocks into a down market and no longer have a steady paycheck coming in, that can badly damage a nest egg. 

Wondering about your financial fitness? Use Bloomberg's WealthScore to see how you shape up.

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