July 26, 2022 · less than 3 min read
It’s getting harder and harder to avoid a recession.
We’re going to need a bigger hike
Growth may be starting to tail off, but in the war on raging prices, the Fed is prepared to do whatever it takes. Having already pushed up the base rate by 0.75 points last month, it’s now preparing… another 0.75 bump. Oh, that sound? That’s just the sound of every business owner wincing in pain.
This has been the story of the year and the Fed has been faced with the choice of either letting it run loose among households or raising interest enough to get prices under control – likely triggering a recession in the process. Choices, choices.
A rough landing
The repeated hikes are already leading to borderline unprecedented changes in the way the economy is working. Tech firms putting a pause on all hiring? Who would have taken bets on that a few years ago? And it’s not just tech. More or less every sector of the economy is starting to feel the pinch. So much so that a Bloomberg survey of economists shows the chances of a recession are now just under 50%.
So, what does this mean for you? Higher interest rates impact every area of the economy, from investments to loans. The more worrying side to this for the average Joe though, is that higher interest rates lead to lower employment levels.
Fewer people spending and borrowing means businesses are looking at a period of lowered growth objectives ahead. It’s about to get that little bit harder for people to claw back the lost earnings of the last couple of months. It might be time to get that rainy day fund ready…
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