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Are we heading for a recession?

Are we Heading for a Recession? [Here’s What the Experts Say]

When it comes to retirement planning, one of the most important factors to consider is whether or not are we heading for a recession? In this blog post, we’ll look at what the experts are saying about the current state of the economy and what that could mean for your retirement plans.

Whether you’re already retired or just getting started, it’s essential to be aware of all potential risks and plan accordingly. So, read on for some insights from economic analysts and gauge whether you think a recession might be in our future.

Recession risks are high — uncomfortably high — and rising, a leading economist says

In June, the Federal Reserve (Fed) raised interest rates for the third time this year to curb inflation. This move was largely unexpected, as most experts predicted that the Fed would wait until later in the year to make any additional rate hikes. The reason for the Fed’s aggressive stance is inflation.

Inflation has been increasing steadily over the past few months. The Fed wants to get ahead of increasingly rising prices before we start to experience hyper-inflation that causes too much damage. However, some economists are concerned that these rate hikes will lead to a recession.

When interest rates go up, it becomes more expensive for businesses and consumers to borrow money. Making money more expensive is intended to decrease economic growth, forcing debtees to pay off their loans.

The worry many economists have is the inflation we are currently seeing is not a normal function of supply and demand. The inflation presently affecting the markets results from the poor economic policy set by Congress and the president.

The Federal Reserve is trying to use its tools to work in the constraints and counteract the bad economic climate the elected officials have created. Slowing the economy down at any rate while the policies are in effect could trigger a significant economic downturn.

As the economy contracts in this environment, many experts agree that the risk of recession is high.

“Risks are high — uncomfortably high — and rising,” said Narayana Kocherlakota, former president of the Federal Reserve Bank of Minneapolis.

Kocherlakota cited several factors that have led him to this conclusion, including increasing pessimism among market participants, soaring inflation, high prices, mortgage rates, and rising interest rates. He also pointed to global events like the coronavirus pandemic and Russia’s invasion contributing to increased uncertainty and risk aversion.

The U.S.’s economy is headed towards a downturn, while the rest of the world’s economies are also experiencing high inflation and high global recession risks, according to data from economists surveyed by Reuters.

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Powell: Recession after rate hikes certainly a possibility

Jerome Powell, the Chairman of the Federal Reserve, testified before Congress on Wednesday and said that a recession is a possibility after the rate hikes. Acnologing that a recession is possible was a surprise to some people in attendance, as Powell had previously mentioned that he thought the economy was in good shape.

The latest interest rate hike was 75 basis points in June of 2022, something the Fed has not done since 1994.

Powell said that the central bank must move “expeditiously” to raise rates fast enough, so inflation doesn’t rise further (the CPI is currently at 40-year highs). If they downplay the pace of inflation in 2022 as they did in 2021, they’ll be too aggressive. Inflation assumptions are nothing more than people believing prices will increase in the future, and this can lead to all sorts of consequences for an economy, like accelerating wages.

The Fed is raising rates because of inflation, which will lead to lower economic growth, which could result in a recession. Given the high rate of inflation and an already slowing economy, consumers will have to reduce spending to compensate.

The Fed has raised rates three times this year and is expected to do so again. Many worries that if the Fed moves too aggressively, it could cause a recession.

Inflation is at a 40-year high, and many say it will take even higher interest rates to get it under control. The CPI (Consumer Price Index) is currently at 8.6%, well above the Fed’s target of 2%.

Powell’s comments come just days after Goldman Sachs issued a report saying there is a 70% chance of a recession within two years. The report cited concerns about high debt levels and weak business investment as reasons for their prediction.

The additional reduced spending at a time when our economy is so fragile is driving the recession fears.

A Growing Chorus Fears the Worst

As the saying goes, there is safety in numbers. And when it comes to fearing a potential recession, many business leaders and economists are singing from the same hymn sheet.

They cite concerns about rising debt, trade tensions, the slowing housing market, high inflation, and slowing global growth as reasons for their pessimism. Hopefully, this increased awareness will help policymakers take action before it’s too late.

In addition to reducing hiring, already affecting the job market, companies like Facebook-owner Meta are leaving certain positions unfilled due to attrition and “turning up the heat” on performance management. CEO Mark Zuckerberg warned workers that the economy might suffer a deep downturn.

Meta confirmed hiring pauses in broad terms last month, but exact figures have not previously been reported. The social media and technology company is bracing for a leaner second half of the year as it copes with macroeconomic pressures and data privacy hits to its ads business.

Chief Product Officer Chris Cox wrote in the memo that “we are in serious times here” and “the headwinds are fierce.”

Inflation and Recession Are Two Different Things

When it comes to money, it’s essential to understand the difference between inflation and recession. Inflation is a rise in prices for goods and services. At the same time, a recession is when the economy moves in the wrong direction, causing an extended period in bear market territory.

Inflation occurs when the average household spends more money on fewer goods and services. More money is needed to pay for necessities based on the value of money decreases over time. One reason may be that gas prices are rising in the U.S., reaching a new record high.

Many would like you to believe that the most significant contributor to higher inflation rates since 1981 has been rising gas prices. The inflation we are seeing now has been caused by extremely grotesque monetary policy coming out of Washington D.C. over the past two years.

Congress has been continuously finding reasons to print money and dilute the value of our dollar. Estimates that 40% of ALL the money the United States of America has ever printed in history was printed in the past couple of years.

As markets have started to open up and money flows, all this new money is finally circulating. To add insult to injury, Congress is sending Billions of dollars to the war effort in Ukraine. Ukraine is a country known for its corruption. Several United Nations members have stated as much.

A recession is defined by:

In a 1974 The New York Times article, Commissioner of the Bureau of Labor Statistics Julius Shiskin suggested several rules of thumb for defining a recession, one of which was two consecutive quarters of negative GDP growth.[6] In time, the other rules of thumb were forgotten.
Source: Wikipedia.org

Q1 of 2022 has already reported a negative Gross Domestic Product (GDP), signaling an economic contraction. From well-known economists to financial institutions are becoming vocal about recession worries. These articles can be found on Bloomsburg, Reuters, CNBC, and many other outlets.

How can we tell if we’re heading for a recession?

There are many ways to tell if we’re heading for a recession. One key sign is rising unemployment rates – when people can’t find jobs, that’s generally a sign that the economy is struggling. Another indicator is if it becomes more difficult to access credit because banks are worried about default rates.

The Federal Reserve is also raising interest rates to tame inflation, which could significantly impact the economy and consumer spending.

Recessions are typically associated with a spike in inflation and interest rates, leading to rising prices of goods and services.

As businesses pay more for raw materials, including payroll, consumer prices are increased, and the labor force is decreased to cover operational costs. This dynamic has yet to propagate through the financial markets fully.

What causes recessions?

Many different things can cause a recession. Sometimes it’s an overheated economy, asset bubbles, abnormally higher prices than actual market value, and occasionally unexpected economic shocks. The Congressional Research Service has identified three main factors contributing to recessions: overheating, asset bubbles, and unanticipated economic shocks.

Generally, there are two types of shocks that can affect the U.S. economy: demand-side and supply-side shocks. Demand-side shocks are changes in consumer spending or investment. For example, if the government decides to reduce military spending, that would be a demand-side shock because it would reduce overall consumer demand. Supply-side shocks are changes in production capacity or prices. For example, if oil prices increase significantly overnight, that would be a supply-side shock because it would change how much businesses could produce and how much they would need to charge for their products.

It’s important to note that these factors do not cause all recessions! A combination of several factors causes most recessions. And sometimes there isn’t one specific cause–it might just be bad luck or something entirely unforeseen!

What are the effects of a recession?

A few critical indicators can tell us if we’re heading for a recession. Usually, recessions last six months to two years or longer. The unemployment rate usually increases during this time, and borrowing costs go up. The Federal Reserve has raised rates more in 2022 than they have done for almost 30 years, so the cost of borrowing money is rising.

Increasing borrowing costs could lead to a recession in 2022.

One of the only bright spots is that during a recession, prices may fall.

How long do recessions last?

Recessions can last anywhere from a few months to a few years. The most prolonged recession on record was the Great Depression, which lasted for ten years. More recently, the 2008 recession lasted for 18 months.

A recession began in 2020 and will end by 2021, with the same one beginning in 2022 and ending by 2023. This information comes from National Bureau of Economic Research (NBER) economists, who use specific economic indicators to measure when recessions have occurred and ended.

One such indicator is high unemployment, which is when more than 10% of the workforce is unemployed. Another indicator is low wages, which means workers’ paychecks aren’t keeping up with inflation. Inflation occurs when prices for goods and services increase, making it harder for people to afford basic necessities like food and shelter.

According to Vox, the labor market is strong, and job openings have reached record levels. These indicators suggest that we are not currently in a recession–although there are some signs that one may be on the horizon. Job openings hit 6 million in July 2019, surpassing the previous record set in April 2001. The unemployment rate has also been steadily declining since 2010, reaching 3.7% in September 2019.

Recessions begin at the peak of activity and expansion before hitting their trough at the bottom of a downturn. The stock market is down, but most losses have been contained to a few hot sectors. For example, technology stocks have significantly declined in recent months, while utilities and healthcare stocks have been relatively stable.

What happens to stock markets during a recession?

It’s no secret that the stock market is a roller coaster. Sometimes it goes up, and sometimes it goes down. And during a recession? It usually goes down.

When an economy is in recession, we expect to see some significant drops in the stock market. For example, between October 2007 and March 2009 (the height of the last recession), the S&P 500 lost more than 50% of its value. That means if you had invested $10,000 in stocks at the beginning of that period, your investment would be worth just $5,000 by the end.

Of course, not every company will see losses during a recession, and some companies may even do better during tough times. But on average, we can expect to see a significant decline in stock prices when there’s a recession going on.

On the other hand, commodities have historically done well weathering a recession. Gold, for example, outperformed the S&P 500 severalfold. Check out the Best Gold IRA companies to protect your wealth.

What should you do with your money during a recession?

It’s essential to stay informed about what is happening in the economy to make the best decisions for your money. Experts say that we might be headed for a recession, and it’s a good idea to start preparing now.

Here are some things you can do to protect your finances during a recession:

  • Save money for a rainy day
  • Diversify your investments
  • Invest in inflation-resistant commodities like precious metals

Gold and silver tend to fare well during a recession, so this could be a wise investment choice. Keep informed about the latest news and make intelligent choices with your money!

How do recessions end?

There’s no one answer to this question, as recessions can end in various ways. Sometimes they come to an end naturally, as the economy grows again and businesses start hiring more people. Other times, the government may step in and implement policies that help stimulate the economy. And sometimes, a financial crisis causes a recession to end abruptly.

Recessions end when a country’s economy begins to recover. They are usually caused by an overproduction of goods and services, which causes prices to drop and the demand for those products to decrease.

No matter how or when they happen, recessions always cause a lot of pain for people who are out of work or struggling financially. But hopefully, things will start looking up soon, and we’ll be on our way back to prosperity!

What lessons can we learn from past recessions?

It’s important to remember that every recession is different. Several factors will determine how bad the next recession will be and how it will affect us individually and as a nation.

Some economists predict that we’re heading for another recession, while others say we’re already in one. No one knows for sure what’s going to happen, but it’s always wise to be prepared.

If you’ve been through a recession before, it can be challenging. But you also know that there are things you can do to make it through OK. Here are some tips:

  • Save as much money as possible
  • Stay calm and don’t panic
  • Keep your expenses low
  • Look for ways to make extra money
  • It might be wise to put that off for a year or two if you’re on the verge of retirement.
  • Take steps now to ensure your assets are protected.
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