The Dow Jones Industrial Average (INDEXDJX: DJI) at one point climbed more than 300 points Friday morning following a surprise increase in the US Jobs Report. After a tumultuous pandemic year in which the unemployment rate ballooned to 14.8%, unemployment has fallen to 6.2% as COVID-19 vaccines are rolled out, state restrictions are lifted, and people get back to work. The US added 379,000 new jobs in February while economists projected only 210,000 jobs being added.
Despite the surprising jobs report, economists still have many concerns in regards to what will happen if the economy grows too quickly. As gas prices (NYMEX: WTI Crude) soar to USD 4.58 per gallon and the Senate prepares to pass a USD 1.9 trillion COVID-19 relief package, investors are heavily concerned as to what the US Federal Reserve (The Fed) will do if inflation happens too quickly. Should inflation, the devaluing of the US Dollar, happen sooner than expected analysts worry that the Fed will quickly raise the Federal Interest Rate, the cost of borrowing money.
For those who might not understand the ramifications of this, if the interest rate rises it will cost more to borrow money, which causes a negative domino effect in the economy. As businesses and average people are less inclined to borrow, business spending will also decrease. As spending declines so too will business revenue, and this can ultimately cause stocks to go down. The Fed must use the interest rate to keep inflation in check and our economy in balance. It is your responsibility as an investor to be informed on how this could affect your financial well being. To learn more on this subject visit this link.