Are we currently in a recession in the U.S., or are we headed for one? It's a question on the minds of many Americans as the economy continues to face uncertainty and volatility. Janet Yellen, the U.S. Treasury Secretary, recently declared: “You don’t have a recession when you have the lowest unemployment rate in 53 years.” Let's HOPE she is correct.
There have been several positive developments recently that, in our view, boost the odds that the economy can avoid a recession. Many investors, including Janet Yellen, are not taking into consideration the significant delayed impact of monetary policy. It is disconcerting to observe that the Federal Reserve is raising interest rates and implementing quantitative tightening (QT) at a rate that is unprecedented in the past few decades. We DESIRE that our predictions are inaccurate and that the consequences are minimal.
The “hope” framework, developed by Michael Kantrowitz, chief investment strategist of Piper Sandler, describes the lags and the sequence in which economic activity weakens before a recession. His framework acknowledges that the most interest rate-sensitive sectors are the first to feel the brunt of tightening monetary policy and often serve as leading economic indicators.
The Federal Reserve is increasing its restrictions on the money supply at a quicker rate than it has in more than four decades. Given the highest level of leverage in the economy ever, any rise in interest rates can have an amplified effect. One should not be under the impression that a recession is unlikely simply because employment is doing well; this would be a naïve assumption.
If a recession is around the corner, there are several smart strategies that investors should consider. They should pick up a side hustle, transfer their credit card debt to a balance transfer card with a zero-interest introductory period, and look for cards with intro periods of 15 months or longer. They should also not cut back on four things during a recession, and read up on nine things they must do before the next recession.
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0. “Is the U.S. in a Recession or Not?” Gold Seek, 13 Feb. 2023, https://goldseek.com/article/us-recession-or-not
1. “A Recession Could Be More Likely Now: Here's What Investors Should Do” The Motley Fool, 18 Feb. 2023, https://www.fool.com/investing/2023/02/18/recession-more-likely-now-what-investors-should-do/
2. “Janet Yellen Should Focus On HOPE – RIA” Real Investment Advice, 15 Feb. 2023, https://realinvestmentadvice.com/janet-yellen-should-focus-on-hope
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