How to deal with rising inflation

Important data has arrived over the past few days, but it has done nothing to dispel the fog that has enveloped the markets and the economy.

Is the economy going down? Is inflation under control?

Clear answers are important to anyone who has or is looking to get a job, has bills to pay, is buying or selling a home, renting an apartment, is worried about making or repaying a loan, or investing. Actually, for everyone.

But no one has those answers.

It would be better, clearer if there was more clarity, but there simply isn’t. Smart people need to operate on two fronts: preparing for short-term trouble and investing in the long-term.

First, on Wednesday, the Federal Reserve announced it was raising short-term interest rates by 0.75 percentage points, bringing the federal funds rate to a range of 2.25 to 2.50 percent — a sharp increase from nearly zero in early March.

Then, on Thursday, the Commerce Department said economic output, as measured by gross domestic product, fell by a seasonally adjusted annual rate of 0.9 percent in the second quarter. This was the second straight quarterly decline. The new data will improve, and it doesn’t mean the economy is in recession, but even so, this report has prompted a lot of handwringing.

Federal Reserve Chairman Jerome H. Powell said at a news conference on Wednesday that the Fed was deliberately “slowing down the economy” to curb inflation. But, for what it’s worth, Mr. Powell, I didn’t believe the economy was in recession, anyway. For example, there are still many jobs.

Whether things will end up this year or in 2023, he doesn’t even try to make a hard prediction. The Federation will be attentive as soon as new information arrives, and after a while, there were some.

Two Democratic senators, Joe Manchin III of West Virginia and Majority Leader Chuck Schumer of New York, announced a broad agreement on climate and energy programs, health care subsidies and prescription drugs, taxes and possibly more. They call it the 2022 Inflation Reduction Act because tax increases will outpace spending over a 10-year period. But the details are sketchy, and the bill’s prospects are uncertain.

By all means read all these news. Then proceed carefully.

Even if we commit ourselves to issues that directly affect the US economy and markets, and perhaps even your personal finances, there is great danger right now.

At the top of the list is inflation. Runaway Inflation The ever-increasing rate of inflation is shocking the consumer and shaking the political environment.

The last time inflation was so hot, Ronald Reagan was president and Paul Volcker was chairman of the Federal Reserve. If you weren’t around then, consider that Mr. Volcker’s main mission is to “break the back of inflation.” Mr. Powell has now made that mission.

Currently, oil and gas prices have decreased to some extent but are still high. Lots of stuff like houses and restaurants, clothes, used and new cars, apartment rentals and house prices.

Mr. Powell indicated on Wednesday that, currently, the Fed is expected to raise the federal funds rate further: to 3.5 percent by the end of this year and possibly by another half point in early 2023.

Unfortunately, inflation and recession are linked.

That’s because the Fed has only vague tools to control inflation: raising interest rates, selling the securities in its $8.9 trillion portfolio and signaling what it calls “forward guidance.” These actions influence the markets and ultimately countless day-to-day buying and spending decisions. The Fed is using the tools to encourage people and businesses to make inquiries about goods and services. Mr. Powell said he hoped to give the economy enough “softening” to cool inflation.

The problem is that while the Fed can affect demand, it has no control over the supply of goods and services.

The pandemic and war in Ukraine have created many shortages and bottlenecks. However, there are some signs that they are already easing.

The Baltic Dry Index, which tracks global shipping prices, fell 40 percent after hitting a peak in May. And studies of the economies of the United States, continental Europe, Britain, and Japan have shown significant declines in “time supply” and asset inventories.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said there had already been an economic “sea change” as business activity slowed rapidly.

“If central banks keep raising interest rates, policymakers need to keep their eyes open,” he said in an interview.

It took 15 months for the National Bureau of Economic Research, which decides whether a recession has actually occurred, to declare the end. He uses as much time as he needs to be sure in retrospect, because he can’t get it right in the present. I guess aside, I doubt anyone can.

For example, on June 9, 2008—which we now know was the longest and deepest recession since World War II—Ben S. to improve.

“The risk of the economy going into a deep recession seems to have subsided in the last month or so,” he said. In fact, the housing market was already weakening and the entire financial system and economy would collapse in no time.

So we don’t really know if we’re in a recession soon enough to make a difference. However, we know that times are tough. By then, it may be too late to prepare for it if you haven’t already.

Now, if you don’t have a comfortable cash reserve, save money to pay your bills. Above all, avoid rolling over credit card debt. The average rate, 17.25 percent and rising, is already punishing.

Take advantage of price increases for your savings. For example, money market fund rates lag about a month after a Fed rate hike. They are above 1 percent now, and in a month or so, regular money market fund rates should be above 2 percent. Certificates of deposit, short-term Treasurys, and I bonds are good options.

Then invest for the long term. While both stocks and bonds have performed poorly this year, the outlook has improved significantly.

David Rosenberg, chief economist at Rosenberg Research, has warned that a recession is looming since the winter. So it is bullish on Treasury bonds. “If there’s a recession, you want to hold them,” he said.

I am agnostic on the recession question. I always hold a mix of stocks and bonds when I don’t know where things are going and I use cheap index funds to do that. Will the bear market in stocks end? Yes, if there is no recession. But if there is depth, stocks can take more pounds. However, for those with a long horizon – ten or more – buying stocks, in broad index funds, can be a good bet.

Vanguard says the turmoil the markets have taken this year is good. “Long-term expected returns in both stocks and bonds have improved because rates are so low,” said Andrew Patterson, Vanguard’s senior global economist.

Count on unexpected markets. Learn to live with them by making a long-term savings and investment plan. I’ll be back with more tips on how to do it.

Once you make your plan, try to forget about it for a while. With a little luck, you’ll find yourself on guard when the next bit of unsettling news arrives.

Related Posts

16 great country houses selling from £450,000 to £6m as seen in Country Life

Our regular roundup of some of the best homes for sale in Britain is a holiday-friendly county home in Sussex. West Sussex – £5,950,000 An unapologetically charming…

Seattle’s housing market is headed for a recession.

What goes up must come down. That seems to be the motto of the U.S. housing market right now, with some of the nation’s most expensive and…

Ant Anstead Is Selling The Laguna Beach ‘Dream’ Home He Bought After Splitting From Christina Hack – See Photos!

There are some big changes for TV personality Anstead. On Wednesday Celebrity IOU: Joyride The co-host has listed his Laguna Beach, CA home for $3.3 million. Garbage…

San Anselmo adopted new rules after the garden was broken

San Anselmo has implemented new rules for community gardens based on how the city’s amenities are managed. The City Council unanimously approved a new ordinance Tuesday to…

Property: A thriving housing market in Dunfermline and West Fife

Dunfermline continues to be the “hub” for first time buyers in East Central Scotland. ESPC’s latest property report figures show that house prices in the city rose…

FOR SALE: Take a look around this stunning Wirral property with covered BBQ area and fireplace

The family home is immaculately finished and close to the beach. This beautiful detached house is for sale at £1,225,000. In the popular Wirral area, Hoylake, a…

Leave a Reply

Your email address will not be published. Required fields are marked *