Recession is Already Here. No Use Panicking Now!
Therefore, when news outlets started reporting on recession fears, and when Youtubers started to post those god-awful thumbnails, I am pretty confident that the recession will happen in the near future.
Under the leadership of Jerome Powell, the Fed will be increasing interest rates in an attempt to break the back of inflation. Inflation reached 40-year highs in March.
Worsened by supply chain issues and geopolitical conflicts, there seems to be no end in sight.
One of the goals of the Fed is to ensure price stability thus, the Fed will be utilising every tool in its arsenal to combat it.
Tightening monetary policy will result in increased interest rates.
This increases the cost of borrowing and thus, reduces money flowing into risky assets like cryptocurrency and tech stocks.
Mortgages will become more expensive too. Also, money moving into investments would slow down.
Deutsche Bank economists have warned that a major recession is imminent whereas the Bank of America is concerned about the recessionary mood of the financial markets.
The NASDAQ is in a bear market whereas the S&P500 is heading in that direction.
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Consumers have a chance to shore up their finances before the Fed increases interest rates again.
The Fed is playing a very dangerous game here. Too much of an interest rate hike could lead to a recession whereas too low would not make a dent on inflation.
They aim to make a soft landing. This means cooling the economy without triggering a rise in unemployment or a recession.
However, a soft landing may be easier said than done.
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According to TheConversation, high inflation, more than 4%, and low unemployment, below 5%, are strong indicators of future recessions.
Currently, inflation is at 8.5% and unemployment is at 3.6%.
The few historical scenarios whereby the Fed managed a soft landing have “little resemblance to the current moment”.
The labour market is also involved. With wage growth reaching 6.6% and increasing, it has “significant upward pressure on inflation”.
Therefore, it seems likely that recession is just around the corner, at least according to these indicators.
There are several ways to protect your money as inflation rises. I will be sharing these tips on my Telegram channel here!
Anyway, I started a Telegram channel to share business and finance news and a splash of current affairs. Do click the link to join. It’s FREE!
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