The truth is that we’re probably not in a recession right now (although it’s possible), but there are plenty of signs that a recession is imminent.
Sign 1. The Fed raises rates
Inflation is rampant, and the Federal Reserve’s tool to fight soaring prices is its ability to set higher interest rates. It makes borrowing more expensive and slows the economy – by design.
The problem is that the Fed was very late in raising rates. Inflation has been a growing concern throughout 2021, but the central bank only started raising rates in March 2022. So the Fed needs to catch up and take much more drastic action than if it had started raising rates last year.
Fed Chairman Jerome Powell said this month that the central bank would continue to raise rates by half a percentage point at the end of each meeting until it is satisfied that the inflation is under control – then the Fed would continue to raise rates by a quarter point for some time.
Sign 2. The stock market is in sell-all mode
Fearing that rising interest rates will erode corporate earnings, investors are heading for the exit.
This is bad news for people’s pension plans. It’s also bad news for a number of investors who rely on the market for income, including day traders who expected the stock market to move almost in a straight line for most of the decade. . And it’s not good for consumer sentiment either.
This is potentially bad news for the economy, as consumer spending accounts for more than two-thirds of US gross domestic product.
Sign 3. The bond market
When investors aren’t so hot on stocks, they often turn to bonds. Not this time.
This usually happens when the Fed raises rates – the higher cost of borrowing makes the bonds less valuable when they mature, so a higher interest payment on the bonds (the yield) will help compensate and make them more attractive to investors.
Bonds also sold off as the Fed decided to unwind its huge portfolio of Treasuries it had been buying since the pandemic to support the economy.
Sign 4. Chaos around the globe
What happens abroad could also spill over into the United States, hurting the US economy at the worst possible time.
What to do
Lock in a new job now: With an extremely low unemployment rate and many openings, it is a market for job seekers. This could change quickly in the event of a recession.
Take advantage of the real estate boom: If you’ve been hesitating about selling your home, it might be time to make the list. US home prices are up nearly 20% year over year, but mortgage rates are also rising, which will eventually dampen demand.
Put money aside: It’s always a good idea to have cash — cash, money market funds, etc. — to cover urgent needs or unforeseen emergencies.
Finally, a sound advice for any market: Don’t let your emotions get the better of you. “Stay invested, stay disciplined,” says Certified Financial Planner Mari Adam. “History shows that what people – or even experts – think about the market is generally wrong. The best way to achieve your long-term goals is to simply stay invested and stick to your allocation.”
— Allison Morrow and Jeanne Sahadi of CNN Business contributed to this report.
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