Larry Harris, Fred F. Keenan of Finance at the University of Southern California Marshall School of Business and former chief economist at the Securities and Exchange Commission, “Are we going to have a recession? Very likely.”
“It is very difficult to stop inflation without a recession.”
To tame the recent inflationary rise, he did Federal Reserve He indicated that he will continue to raise interest rates.
When rates are high, consumers get a better return on the money they stash in a bank account and have to spend more to get a loan, which can lead them to borrow less.
“High interest rates stifle spending by increasing the cost of financing,” Harris said.
This leaves less money flowing through the economy and growth begins to slow.
It has already caused fears that the Fed’s aggressive moves could push the economy into recession Markets have been dropping for weeks in a row.
Harris said the war in Ukraine, which has contributed to fuel price hikes, labor shortages and another wave of Covid infections, poses additional challenges.
“There were huge things going on in the economy and massive government spending,” he said. “When the stocks get bigger, the adjustments have to be big.
“There will be a day of reckoning, and the question is when.”
But, in fact, recessions are fairly common, and before Covid, there were 13 of them since the Great Depression, each of which was marked by a significant decline in economic activity that lasted for several months, according to data from National Bureau of Economic Research.
Prepare for shrinking budgets, Harris said. For the average consumer, this means “they eat out more often, replace things more often, don’t travel much, hunt, buy hamburgers instead of steaks.”
While the impact of the recession will be widely felt, every household will experience such a decline to a different degree, depending on their income, savings and financial situation.
However, there are several ways to prepare that are global, Harris said.
- Simplify your spending. “If they expect that they will have to cut back, the sooner they do it, the better off they will be,” Harris said. This could mean cutting some expenses now that you only want and don’t really need, like the subscription services you signed up for during the pandemic. If you don’t use it, lose it.
- Avoid variable rates. Most credit cards It has a variable annual percentage rate, which means there is a direct correlation to the Fed benchmark, so anyone with a balance will see interest charges jump with every move by the Fed. Homeowners with adjustable rate mortgages or Home ownership lines of creditand associated with the base price, will also be affected.
This makes this a particularly favorable time to determine the outstanding loans and see if refinancing makes sense. “If there is an opportunity to refinance at a fixed rate, do it now before interest rates go up any further,” Harris said.
- Stash extra cash in I bonds. These inflation-protected assets, backed by the federal government, are virtually risk-free and Pay 9.62% annual rate until Octoberhighest recorded return.
Although there are purchase limits and you can’t take advantage of the money for at least one year, you’ll make a much better return than a one-year savings account or certificate of deposit, which pays as little as 1.5%.