Opinion: It’s time to prepare for a recession
Now, the Fed has little choice but to tighten policy by cutting interest rates sharply to curb inflation. This significantly increases the risk of pushing the economy into a full-fledged recession.
For the average investor, it’s hard to find a place to hide. Recessions are usually accompanied by outright bear markets, with stocks dropping more than 20%, often by much more than that. And with the Fed now aggressively raising interest rates, the bond market is not a safe haven. Stocks and bonds are riskier than usual, and rising inflation means that even cash under the mattress is losing its purchasing power.
What can the Americans do? One answer might be to do nothing, and try to outpace the volatility without trying to time the market. For those who want to hold some money for at least a year, Treasury Inflation-Protected Bonds can be part of the mix.
Consumers may consider cutting back on unnecessary spending, especially to avoid wasting on expensive items. With clouds approaching a slump storm, it’s a good idea to waste some money for a rainy day.
And for job seekers, since recessions lead to major job losses, now is the time to update your resume and make any career moves while the job market is still hot. Keep in mind: Relatively secure jobs are with companies whose customers need their products or services day in and day out — even during a recession — making these companies less vulnerable to the problems of the economy.
There will be more difficult economic news to come. Wisdom calls into question any soothing words from the Federal Reserve, the Biden administration, or the Wall Street bulls about a hopeful descent. But preparing early can help cushion the blow.
Having missed the opportunity to raise interest rates last year, the Fed is now risking a recession in order to tame inflation. As a result, realistically and objectively, it’s time to be on your guard.