With inflation at 40-year highs, the Fed is aggressively hiking interest rates; but it's a tricky proposition: raise rates too much and many fear the next recession is right around the corner. Markets have been reflecting that fear, and while fear is a natural reaction to uncertainty, a look at the past may help provide some reassuring perspective on where we are today. When discussing economic downturns, it's important to remember that not all recessions are created equal.
Where Are We Now?
In the past 20 years, we've lived through three recessions, each with a different cause, duration, and severity: from COVID to a housing bubble to the Dot Com bust. The one constant is that an economic rebound followed.
While a recession is not inevitable, economists are raising the odds of one this year or next. If it occurs, there are reasons why it may not be severe.
Consumers are not overextended financially, so there may not be an across-the-board downturn in consumer spending. There might be a pullback in goods purchased, like furniture, cars, and clothes, but pent-up demand for services in a post-pandemic world, like movie theaters, restaurants, and travel, are expected to continue, despite a recession. With household balance sheets in decent shape, once inflation starts to trend lower, there's a good chance that spending may increase and economic growth will pick up.
Regardless of your thoughts on a possible recession, this is not a time to give in to fear. We design client financial strategies to weather these types of storms. Remember, I'm right here whenever you have a question or concern. Give me a call or send an email, I’d welcome the opportunity to connect.
All the best.
1Stocks are measured by the S&P 500 Composite Index is an unmanaged index that is considered representative of the overall U.S. stock market. Past performance does not guarantee future results. Individuals cannot invest directly in an index. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.
2Markets are represented by the S&P 500 Composite Index, an unmanaged index that is considered representative of the overall U.S. stock market. Past performance does not guarantee future results, individuals can’t invest directly in an index, and the return and principal value of stock prices will fluctuate over time.