- Jeff Bezos told Americans to prepare for a recession by cutting their spending
- Economists now see a recession as inevitable
- Some Fed members consider a recession necessary to tame record inflation
Prepare for a Recession
Amazon Executive Chairman and 4th richest person in the world, Jeff Bezos told people to prepare for a recession. He advised Americans to hold off on big purchases. They should save their cash for a rainy day. Good advice, especially if you are one of the 10,000 Amazon employees he is about to layoff. Bezos didn’t say how long he thinks the downturn will last. But he believes the US will be in recession soon, if it isn’t already.
Inflation is eating away at American’s savings. We are now tapping into our credit reserves. New data showed that household debt surged to $16.5 trillion last quarter. The number of mortgages and car loans is on the decline due to higher interest rates. But credit card debt is swelling quickly. It is rising at its fastest pace since 2008. Personal savings swelled during the pandemic. Today, those savings have plunged in half.1
Most economists see a recession as inevitable. A Bloomberg economic forecast projected the probability of recession by October 2023 at 100%. The risk of recession is increasing alongside rising interest rates meant to combat inflation. The US economy did meet the informal definition of recession by contracting for two straight quarters in 2022.2
There was growth in the third quarter. But economists said that it was more accounting than actual growth. “If this constitutes improvement, we’ve set a very low bar,” said Bankrate chief financial analyst Greg McBride. He added the “pervasiveness” of inflation “remains problematic,” particularly since shelter, food and energy prices “are still seeing large and consistent increases.”3
The latest Bank of America survey of fund managers found that 77% see a global recession occurring over the next year. Recession in the US will pale compared to elsewhere in the world. 92% of those surveyed predicted the economy will be marked by stagflation. High inflation coupled with negative growth is considered the worst-case scenario for markets. Stagflation would require the Fed to shock the economy with even more drastic rate hikes.4
The Federal Reserve May Require a Recession
One Fed official said that it won’t be possible to reduce inflation without a recession. Esther George is president of the Federal Reserve Bank of Kansas City. She said, “I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there.” And in response to other Fed member’s hope for a ‘soft landing’, she replied, “I would love if there was that path, and I’ve seen people paint that path. I have not in my 40 years with the Fed seen a time of this kind of tightening that you didn’t get some painful outcomes.”5
Ms. George advocates slowing the pace of rate increases. But not stopping them. There is consensus among Fed members that stopping rate hikes prematurely could let inflation return. They feel that situation is worse than a recession. Ms. George and others don’t want to repeat the mistakes of the 1970s and ’80s.
She warns investors not to expect a pivot anytime soon. Inflation is here and recession is coming. Now is the time to reduce risk and find safe haven assets. Our Gold IRA is designed to protect your wealth through a downturn. Contact us today to learn more.