There are four reasons why the economy seems to be collapsing – and what to do about it

Pretty much anyone who wants a job can have one. The economy is so hot that prices have risen sharply since the 1980s. The housing market is on fire. Consumers are spending like crazy.
Yet we keep hearing the word “recession” as if it were 2007 again. What?

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.

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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.

Last week the Fed raised its half-percentage point rate, the largest single rate increase in 22 years.

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.

The Fed is confident that it can raise rates without plunging the economy into recession. But that so-called soft landing has proved elusive in the past, and many Wall Street banks believe the Fed will create a recession to overcome inflation.

Sign 2. The stock market is in sell-everything mode

Extreme fear is the main feeling on Wall Street this year. The CNN Business Fear and Greed Index ranks six out of 100.
More than $ 7 trillion has been removed from the stock market this year
After reaching record highs in early January, the stock market lost nearly one-fifth of its value – stocks sank near the beer-market area. The Nasdaq (COMP) Already a bear is deep in the market. More than $ 7 trillion has evaporated from the stock market this year.

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.

Although a minority of Americans actively invest in the stock market when they see the Red Sea next to a CNN ticker or on their phone screen, historically people have taken a break. In May, consumer sentiment fell to an 11-year low.

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.

Safe stop selling US government treasury. As bond prices fall, yields rise – and yields in the 10-year Treasury top 3% this month for the first time since 2018.
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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.

As bonds have sold out and investors have grown increasingly fearful of an economic downturn, the gap between short-term and long-term bond yields is narrowing. Yields on the two-year Treasury note briefly rose above the benchmark 10-year note in March for the first time since September 2019. The so-called Yield Curve inversion has occurred before every recession since 1955, at one time creating a “False Positive”, according to the Federal Reserve Bank of San Francisco.

Sign 4. Chaos around the world

None of this is happening in the air. Russia continues its deadly aggression in Ukraine, shutting down supply chains and sending energy prices through the roof. China has continued to lockdown several of its major cities due to the high incidence of Kovid. And labor shortages have pushed up wages and disrupted the normal flow of goods around the world.
Russia continues to threaten European countries by cutting off their energy shipments, which could plunge the European Union’s economy into recession. China’s economy has slowed dramatically as it keeps workers at home as part of a zero-quad policy.

What happens abroad could spread to the United States, potentially hurting the US economy at its worst.

What do you do

Okay, so the recession could come soon. Here’s what No. To: Panic.
Even if a recession is inevitable, it is hard to say how serious it will be. But it is never difficult to plan for the worst. Here are some ways that financial advisors say you can keep your money away from recession.

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.

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