In 2022, the Federal Reserve has hiked interest rates multiple times to combat inflation.
And it’s not finished just yet…
By year’s end, the central bank could raise rates to as much as 4.4%.
By 2023, the rates could be as high as 4.75%.
That’s because U.S. consumer prices are now back to 40-year highs, which pressures the Fed to get even more aggressive. And while there’s hope higher rates will cool off inflation, it’s also sending the cost of housing, food, energy, and your debt to higher highs. Prices at grocery stores are now up 13% year over year. Unfortunately, it could also make a mess out of the housing market.
“Mortgage buyer Freddie Mac reported Thursday that the average key 30-year rate climbed to 6.92 percent from 6.66 percent last week. Some lenders are now even offering rates above 7 percent,” reported Daily Mail.
On top of that, about 61% of Americans, or 157 million adults, are living paycheck to paycheck these days. A year ago, that number sat at 55%. Meanwhile, the personal savings rate plummeted from about 20% in 2020 to below 5% this year, according to Time.com.
And while Bloomberg reports there’s a 100% chance of recession within the year, I hate to break it to you. But we’re already knee-deep in one. Even Moody’s Analytics’ chief economist Mark Zandi told CNBC that a recession MAY be on the horizon.
In fact, as noted by CNBC: Zandi called employment levels the “most important indicator[s]” of a recession. With unemployment at the low rate of 3.5% he doesn’t buy the view that two back-to-back quarters of negative growth alone are sufficient to make for a recession.
Also, according to a CNBC survey:
“Nearly half (48%) of CFOs polled said they expect a recession in the first half of 2023, down from the previous quarter’s survey when 68% cited the first two quarters of next year as the most likely start of a recession, as more CFOs move recession expectations closer in time. Nineteen percent of CFOs now say they expect a recession in the fourth quarter of this year, up from 13% in Q2. Furthermore, another 19% of the CFOs said that the U.S. economy is in a recession now.”
Does that mean investors should pack their bags and run from the market? Nope.
It just means investors need to be cautious, and pick up stocks that are resilient in pullbacks and recessions, such as high-yielding dividend staples.