The truth is that we are probably not in a recession right now (although it is possible), but there are many signs that one is just around the corner.
Signal 1. The Fed is raising rates
Inflation has been rampant, and the Federal Reserve’s tool to combat rising prices lies in its ability to set interest rates higher. That makes loans more expensive and slows down the economy, on purpose.
The problem is that the Fed was too late in raising rates. Inflation was 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. 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 inflation is under control, and then the Fed would continue to raise rates by a quarter point for a while.
Signal 2. The stock market is in sell-all mode.
Worried that higher interest rates will erode company profits, investors have turned to exits.
That’s bad news for people’s retirement plans. It’s also unwelcome news for a number of investors who rely on the market for income, including day traders who have counted on virtually straight-line stock market growth for most of the decade. And it’s not good for consumer sentiment, either.
That’s potentially bad news for the economy, because consumer spending accounts for more than two-thirds of US gross domestic product.
Sign 3. The bond market
When investors aren’t that excited about stocks, they’ll often switch to bonds. Not this time.
That usually happens when the Fed raises rates: the higher cost of borrowing makes the bonds less valuable when they come due, so a higher interest payment on the bonds (the yield) will help offset and make them more attractive. for investors.
Bonds have also sold off as the Federal Reserve decided to unwind its huge portfolio of Treasuries that it had been buying since the pandemic to prop up the economy.
Sign 4. Chaos around the world
What happens abroad could also affect the United States, hurting the US economy at the worst possible time.
Block a new job now: With ultra-low unemployment and plenty of vacancies, it’s a market for job seekers. That could change quickly in a recession.
Take advantage of the housing boom: If you’ve been on the fence about selling your home, now may be the time to make a list. Home prices in the United States are up almost 20% year over year, but mortgage rates are also rising, which will eventually curb demand.
Set aside some money: It is always a good idea to have liquid assets (cash, money market funds, etc.) to cover urgent needs or unexpected emergencies.
Finally, some sage 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 often wrong. The best way to achieve your long-term goals is to stay invested and stick to your allocation.”
— Allison Morrow and Jeanne Sahadi of CNN Business contributed to this report.