What is a rolling recession and are we in it? Expert explanation
By most measures, the US economy is in solid shape.
Although the first half of 2022 started with negative growth, a strong labor market and resilient consumerism helped turn things around and give hope for the year ahead.
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gross domestic productwhich measures the overall health of the economy, rose more-than-expected in the fourth quarter Federal Reserve He is widely expected to announce a more moderate rate hike at next week’s policy meeting inflation He begins to calm down.
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However, some parts of the economy, such as housing, manufacturing and corporate earnings, have shown signs of slowing, and the recent wave of layoffs has fueled fears that a recession is still looming.
“There is no dearth of economists with strong opinions,” said Thomas Philipson, professor of public policy studies at the University of Chicago and former acting chair of the White House Council of Economic Advisers. “There is a lot of paucity of economists who have the right opinion.”
The “rolling recession” may have already begun
Instead of a sudden downturn that Americans need to prepare for, a “rolling recession” has already begun, according to Sung Won Soon, professor of finance and economics at Loyola Marymount University and chief economist at SS Economics. “This means that some parts of the economy are taking turns suffering rather than simultaneously.”
In fact, the worst may be over, he said.
Much of the reaction to the Fed’s moves has made its way through the economy and financial markets. Businesses trimmed inventories, cut jobs in some areas, and consumers refinanced their homes before prices soared.
“It’s time to think about an exit strategy,” Sun said.
This course has proven many of our traditional theories wrong.
Yiming Ma
Assistant Professor of Finance at Columbia University Business School
“Forecasts about the recession have been wildly inaccurate,” added Yiming Ma, associate professor of finance at Columbia University Business School.
“This course has proven many of our traditional theories wrong,” Ma said.
In fact, she added, this may be the soft landing Fed officials were aiming for after aggressively raising interest rates to tame inflation.
What does this mean for consumers
But regardless of the country’s economic standing, Many Americans struggle In the face of exorbitant prices for everyday items, such as eggMost of them have exhausted their savings and are now relying on credit cards to make ends meet.
Several reports appear Financial well-being is generally deteriorating.
“For consumers, there is a lot of uncertainty,” Philipson said. For now, he added, the focus should be on maintaining income and avoiding high-interest debt.
“Don’t plan any big expenses in the future,” he said. “Nobody knows where this economy is going.”
How to prepare your money for a rolling recession
While the impact of inflation is felt across the board, each household will experience a recession rolling in to a different degree, depending on their industry, income, savings, and job security.
Still, there are a few preparation methods that are considered universal, according to Larry Harris, president of Fred F. Keenan Professor of Finance at the University of Southern California’s Marshall School of Business and former chief economist at the Securities and Exchange Commission.
Here’s his advice:
- Simplify your spending. “If they anticipate that they’re going to have to cut back on spending, the sooner they do it, the better off they’ll 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 covid pandemic. If you don’t use it, you lose it.
- Avoid variable debt. Most credit cards It has a variable APR, which means it’s directly tied to the Fed benchmark, so anyone with a balance sees interest charges jump with every move by the Fed. Homeowners with adjustable rate mortgages or Home equity lines of creditwhich has been linked to the main interest rate, has also been affected.
- He stashed extra cash in Series I bonds. Backed by the federal government, this inflation-protected asset is virtually risk-free and currently pays 6.89% annual interest on new purchases through this April, down from 9.62% annual rate Offered from May through October last year.
Although there are purchase limits and you cannot make use of the funds for at least one year, you will get a much better return than a one-year savings account or certificate of deposit. Prices for online savings accounts, money market accounts and CDs have increased, however These returns still do not compete with inflation.