To view this email as a web page, click here.

By Kristin Myers, Editor-in-Chief

What's Happening Today

Good news today about inflation and income comes amid warnings about tougher times ahead. Federal Reserve Chair Jerome Powell said the central bank would keep raising interest rates to fight inflation until the "job is done." In his remarks in Jackson Hole, Wyoming, Powell acknowledged that bringing down inflation was going to sting. In addition to higher unemployment, Powell said, higher interest rates will "bring some pain" to households and businesses.

Powell's speech came just as the Fed's preferred inflation gauge, the personal consumption expenditures (PCE) index from the Bureau of Economic Analysis showed that inflation is in fact retreating. The index was 6.3% higher in July than the same period last year, down from a 6.8% increase in June. Month to month, the PCE index actually dropped 0.1% in July from the month prior.

And in good news for all of us, personal income is on the rise, jumping 0.2% last month, as workers continued to make gains. The figures, however, were lower than expected, as economists had forecasted a gain of 0.6%.

But despite the fact that inflation is declining, the central bank has made it clear it won't stop raising rates any time soon. It's no surprise that investors didn't love the news. Stocks tumbled this morning as Powell spoke.

So what does this mean for us? It seems that we'll have to take some of the good news with the bad. Yes inflation is dropping, which is something we can all cheer about, but bumpier times clearly lay ahead. You'll likely hear more headlines about layoffs, and it won't be as easy to get a job anymore. But this doesn't mean 2008 will repeat itself all over again. People are financially better off now than they were then—which means this is a storm we will be able to weather more easily as a whole.

- Kristin

Editors' Picks

Fed Chief Powell: Bringing Down Inflation Will Require Economic Pain (Axios)

Biden's Student Loan Forgiveness Plan Refunds Borrowers Who Paid During Pause (The Wall Street Journal)

US Consumer Sentiment Rises to Three-Month High on Easing Prices (Bloomberg)

Will Remote Work Make it Easier to Ship White-Collar Jobs Overseas? (The Washington Post)

Current Federal Reserve Interest Rates and Why They Change (The Balance)

How To Find Your Student Loan Balance (The Balance)

Calculating Income For Income-Driven Repayment Plans (The Balance)

Term of the Day

Stagflation

Stagflation occurs when high inflation happens during a period of stagnant economic growth and high unemployment. It was a problem in the 1970s, and it is still a danger today, though policy changes have made it less likely.

Stagflation presents a challenge to policymakers because the tools used to combat inflation typically raise unemployment and vice versa.

Stagflation occurs when the government or central banks expand the money supply at the same time they constrain supply. The most common culprit is when the government prints currency, and can also occur when a central bank's monetary policies create credit. Both increase the money supply and create inflation.

At the same time, other policies slow growth. That happens, for instance, if the government increases taxes. It can also occur when the central bank raises interest rates. Both prevent companies from producing more. When conflicting expansionary and contractionary policies occur, it can slow growth while creating inflation. That's stagflation.

SPONSORED BY FIDELITY

Why the Grass Is Greener at Fidelity

Fidelity Financial Consultants share their perspective on what makes Fidelity such a unique place to work. Learn More >

Off the Charts

The latest personal consumption expenditures (PCE) index from the Bureau of Economic Analysis showed that inflation is starting to cool, as the index dropped 0.1% in July from June, though it was still 6.3% higher compared to the same time last year.

On Tuesday, August 30 at 12:30 p.m. EST, join us on Instagram Live for a discussion with The Balance Editor-in-Chief Kristin Myers and Verywell Mind Editor-in-Chief Amy Morin, on how to approach estate planning conversations with your family. Follow us on Instagram to get updates on The Balance's live events!