Experts Foresee Recession and Continuing Inflation
Summer is coming to an end. And both business leaders and economists are predicting a hard fall. Surveys of both groups see recession, dropping stock prices and continued high inflation lasting into the near future.
Stifel Financial surveyed corporate executives, business owners and private equity investors. 97% said we are either in a recession or are heading towards one. They also said inflation and a tight labor market are the two biggest threats to business today.1
Inflation did show a moderate slowdown. But the slowdown was due to a drop in gas prices. At 8.5%, it is still hovering around 40-year highs. No surprise then that more than half of those surveyed believed soaring inflation will be an issue thru at least the next year and perhaps longer.
Economists also think the US is bound for a recession. The National Association of Business Economics conducted a survey of economists. 73% of those surveyed do not believe the Fed can get inflation back down to its 2% goal without a recession. Fed Chairman Powell has conceded that the path to avoiding a recession has narrowed. The chances have slimmed because of the drastic interest rate hikes necessary to thwart inflation.2
Interest Rate Hikes Aren’t Enough
The world’s biggest bond investors say central banks won’t win the war against inflation for a couple of reasons. First, they believe central banks won’t properly time interest rate hikes and cuts. They will raise rates until they think inflation is under control. Then, when recession hits, they will lower rates again.
Fed officials said there was a risk they could tighten more than necessary. As a result, the Fed may pivot in the face of a deep recession. If the Fed stops hikes too soon, inflation may come roaring back. Which would make the Fed raise rates again. Instead of taming inflation and stabilizing the economy, the central bank would increase uncertainty and volatility.
Interest rate hikes can affect inflation by slowing growth or setting off recessions. But banks can’t address the shifts in the world economy. Structural inflation is something the Fed can’t fight with higher rates. A new reality is keeping a steady flow of inflationary pressure.
Globalization allowed for cheap commodities and labor. Now, the Ukraine war is keeping energy prices high. This, in turn, will keep stoking inflation.
Political events and the pandemic also exposed vulnerable supply chains. To fix this, businesses are now starting a process of ‘deglobalization’. In the US, President Joe Biden signed a $52 billion measure to spur semiconductor manufacturing in the country. His Treasury Secretary, Janet Yellen, has also promoted the concept of “friend-shoring”. The goal of which is diversifying supply chains among allied countries to protect against disruption. Moving jobs from low wage countries raises prices. Meanwhile, tight US labor markets will keep inflation high as well.3
Overall, business leaders and economists agree that price pressures aren’t going anywhere. Investors can expect interest rates and inflation to grow more volatile over the next year. Advisors caution against misreading the recent stock rally. Stocks and bonds are set to tumble once more even though inflation has likely peaked, according to the latest MLIV Pulse survey. Rate hikes will reawaken the great 2022 selloff. The increasing interest rates, lingering inflation and recession will deal fateful blow to stock prices. Retirement accounts will feel the bite of the Fed’s chaotic monetary policy especially hard.
With the promise of such long-term uncertainty, investors should protect their wealth in safe haven assets. Our Gold IRA can offer stability against whipsawing economic cycles. Contact us today to learn more about what it can do for you.