Is the U.S. Heading for a Recession? Janet Yellen’s View and Preparation Strategies
By Are we currently in a recession in the U.S., or are we headed for one?[0] 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.”[1] Let's HOPE she is correct.[2]
There have been several positive developments recently that, in our view, boost the odds that the economy can avoid a recession.[3] Many investors, including Janet Yellen, are not taking into consideration the significant delayed impact of monetary policy.[2] 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.[2] We DESIRE that our predictions are inaccurate and that the consequences are minimal.[2]
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.[4] 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.[4]
The Federal Reserve is increasing its restrictions on the money supply at a quicker rate than it has in more than four decades.[4] Given the highest level of leverage in the economy ever, any rise in interest rates can have an amplified effect.[4] One should not be under the impression that a recession is unlikely simply because employment is doing well; this would be a naïve assumption.[4]
If a recession is around the corner, there are several smart strategies that investors should consider.[5] 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.[6] 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.[7]
At our company, we uphold the Golden Rule, so all of our editorial opinions are solely our own and have not been reviewed, approved, or endorsed by any advertisers mentioned.[6] Not all offers on the market are available through The Ascent.[6] Content from The Ascent, which is created by a different analyst team, is distinct from editorial content from The Motley Fool. The Motley Fool has a disclosure policy in place.[6]
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
3. “Recession still likely, but odds of soft landing rising” FXStreet, 8 Feb. 2023, https://www.fxstreet.com/analysis/recession-still-likely-but-odds-of-soft-landing-rising-202302081108
4. “The Leading Indicators are Signaling Recession – Articles” Advisor Perspectives, 15 Feb. 2023, https://www.advisorperspectives.com/articles/2023/02/15/the-leading-indicators-are-signaling-recession
5. “6 Considerations For Investors As Recession Looms” Law360, 15 Feb. 2023, https://www.law360.com/articles/1575660/6-considerations-for-investors-as-recession-looms
6. “With a Recession a Possibility, Here's How Much Suze Orman Says You Should Have in Your Emergency Fund” Nasdaq, 17 Feb. 2023, https://www.nasdaq.com/articles/with-a-recession-a-possibility-heres-how-much-suze-orman-says-you-should-have-in-your
7. “8 Important Things You Should Do Before Retiring During a Recession” Yahoo Finance, 16 Feb. 2023, https://finance.yahoo.com/news/8-important-things-retiring-during-130300958.html
