Take no prisoners: In the Fed's inflation fight, no one is spared

New York(CNN Business) Call it the "Take No Prisoners" economy.

Recession worries are deepening around the world. Mortgage rates are spiking and housing is stalling. The Dow is at a two-year low and near a bear market. Global central banks are jacking up interest rates with no end in sight until high inflation is vanquished.

No one is spared: Investors, homebuyers, car buyers, companies, nor maybe even workers.

The Federal Reserve is aggressively fighting inflation by lifting its benchmark interest rate five times so far this year. The last three of those rate hikes were a gigantic 75 basis points each. The Fed has vowed to raise rates and keep them there until the job is done.

Fed chief Jerome Powell again last week acknowledged pain for just about everyone. "We have to get inflation behind us. I wish there was a painless way to do that. There isn't."

Higher interest rates make life more expensive for anyone who borrows money. For borrowers, it is even more critical to keep credit card balances down, pay bills on time to preserve your credit score, and generally practice good personal finance.

Even then, the side effects of the Fed's medicine are far-reaching.

Investors

Cue another vicious week for investors. The calendar is chock-full of housing data and the week ends with the Fed's favorite inflation indicator, the Personal Consumption Expenditures price index, along with income and spending numbers.By the looks of last week's stock market action, Wall Street is waking up to the fact the Fed will remain aggressive. Bond yields are rising, making stocks look less attractive.

Then there's Goldman Sachs' S&P 500 price target downgrade, its fourth this year, to 3,600 from 4,300. That's a whopping 16% cut. For stock investors, the gloom is palpable. The pathway to a soft landing seems more difficult by the day.

And yet, the S&P 500 sees an average decline of about 30% around recessions, according to an analysis by Lori Calvasina, head of US equity strategy at RBC. The S&P 500 begins this week down 23% for the year. If we're really heading toward recession, most of that downside could already be priced in.

Ian Shepherdson, Chief Economist of Pantheon Macroeconomics, assured his readers any recession will be "brief and mild."

"The very healthy state of the private sector's finances stands between financial conditions and recession," he wrote in a note to clients. "No one knows how far people will run down their savings, but they start with a gigantic pile of cash. If recession comes, it will be brief, and mild; without severe imbalances, recessions can't be severe either."

Nothing lately is normal, of course — but the calendar may also be on investors' side.

"Major market bottoms have occurred in October more than any other month since 1932," said Oppenheimer's Ari Wald. "We think the combination of extreme pessimism and 'less-intense' selling would provide the setup for another October turn."

Wald cited the old Wall Street saying to sell Rosh Hashanah and buy Yom Kippur. Those holidays fall on September 26 and October 5 this year.

Homebuyers

Mortgage rates have more than doubled from the record low last year of 2.87% to just over 6% last week. That adds more than $700 in monthly interest payments to the same house purchased a year ago. The higher rates ding home affordability but also might be holding back home sales.

For years, mortgage rates were super-low. Homeowners may balk at selling their home with a low rate to buy another with much higher rates. It worsens the already scant inventory problem in housing.

And though higher rates are taking the boil off the housing market, many first-time homebuyers are still shut out.

Car buyers

The market to buy a new or used car is still out of whack because of pandemic-related supply-chain problems. Higher interest rates make financing a car — when you can find one — even more expensive.

"There aren't many new cars available," Pat Ryan, CEO of personal finance app Co-Pilot told me on Early Start. And used car prices are still "incredibly high" but peaking.

"Used cars were peaking maybe six, eight weeks ago. They started to come down but the problem is the rate [hikes] have increased payments, faster than the decline in prices brought relief," Ryan said.

The average interest rate for a 60-month new car loan was 3.85% at the beginning of the year. It is now hovering above 5%.

Workers

Powell and the Fed have been clear that they will tolerate, and may even desire, a higher jobless rate to cool inflation.

The US economy has added back 3.6 million jobs this year and recovered all the jobs lost in the pandemic, but the Fed's inflation crusade could take back up to 1.2 million of them. As my colleague Alicia Wallace points out, the Fed expects the nation's unemployment rate to grow to 4.4% next year — up from August's 3.7% — and potentially as high as 5%.

Her math: "Assuming no change in the labor force, that would mean around 1.2 million more people will be unemployed. At the high end of the Fed's range, at 5%, that would be 2.2 million more unemployed."

— CNN Business' Nicole Goodkind contributed to this report.