The truth is that we are probably not in recession right now (although it is possible), but there are plenty of signs that there is a corner.
Sign 1. Fed hiking rate
Inflation has risen sharply, and the Federal Reserve’s tool to fight rising prices is its ability to set interest rates higher. This makes debt more expensive and slows down the economy – on purpose.
The problem is that Super Duper has delayed raising the Fed rate. Inflation was a growing concern throughout 2021, but the central bank only began raising rates in March 2022. So the Fed has to play catch-up – and take much tougher action than it did last year when it started raising rates.
Fed Chair Jerome Powell said this month that the central bank will continue to raise rates by half a percentage point at the end of each meeting until it is satisfied inflation is under control – and then the Fed will continue to raise rates by a quarter point. For a while.
Sign 2. The stock market is in sell-everything mode
Concerned that high interest rates will erode companies’ profits, investors are leaving.
This is bad news for people planning to retire. This is also unfortunate news for many investors who rely on the market for income, including day traders who rely on the stock market who have risen in a virtually straight line over the good part of the decade. And it’s also not great for consumer sentiment.
This is potentially bad news for the economy, as consumer spending makes up more than two-thirds of America’s gross domestic product.
Sign 3. Bond market
When investors are not so keen on stocks, they often go into bonds. Not now.
This usually happens when the Fed raises rates – the high cost of borrowing makes bonds less valuable when they mature, so paying higher interest rates on bonds will help compensate and make them more attractive to investors.
Bonds have also been sold as the Fed has decided to open up its huge portfolio of treasuries it has been buying to boost the economy since the epidemic.
Sign 4. Chaos around the world
What happens abroad could spread to the United States, potentially hurting the US economy at its worst.
What do you do
Lock a new job now: With very low unemployment and a lot of opportunities, it is a job market for job seekers. That a recession could change quickly.
Housing Boom Cash In: If you are looking to sell your home, now may be the time to list. Home prices in the U.S. have risen about 20% a year, but mortgage rates are also rising, which will ultimately reduce demand.
Set aside some cash: It is always best to keep fluids – cash, money market funds, etc. – to cover emergencies or unforeseen emergencies.
Finally, some sage advice for any market: Don’t let your emotions get the better of you. “Invest, stay disciplined,” said Marie Adam, a certified financial planner. “History shows that what people – even experts – think about the market is generally wrong. The best way to meet your long-term goals is to just invest and stick to your allocation.”
– Allison Morrow and Jean Sahadi of CNN Business contributed to this report.
