Former SEC chief economist says recession ‘probable’

At almost every step, the U.S. economy has made a stunning recovery after the coronavirus epidemic encouraged widespread shutdowns and cuts across the country.

The labor market has added millions of jobs and wages have risen significantly, even in low-wage positions.

But rising inflation and rapidly rising interest rates have worried most Americans that good times will be short-lived.

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“Are we going to have a recession? It’s very likely,” said Larry Harris, chairman of the Fred V. Kenan Chair of Finance at the Southern California Marshall School of Business University and former chief economist at the SEC.

“It’s very difficult to stop inflation without a recession.”

To control the recent spike in inflation, the Federal Reserve has indicated that it will continue to raise interest rates.

When rates are high, consumers get better returns on money deposited in a bank account and they have to spend more to get a loan, which can trigger them to borrow less.

“Rising interest rates increase the cost of financing and cut costs,” Harris said.

The question is when the reckoning will take place.

Larry Harris

Former chief economist of the SEC

It flows less money through the economy and growth starts to slow.

Markets have already been sliding in a row for weeks, fearing that the Fed’s aggressive measures could push the economy into recession.

Harris said the war in Ukraine, which has contributed to rising fuel prices, labor shortages and another wave of Kovid infection, poses additional challenges.

“Huge things are happening in the economy and there has been a lot of government spending,” he said. “When the balance is big, the adjustments have to be big.

“As the day goes on, the question is how soon.”

The last recession happened in 2020, which was also the first recession of some young millennia and the genres experienced.

But, in fact, the recessions were fairly common and before Covid, there were 13 of them since the Great Depression, each marked by significant declines in economic activity over several months, according to data from the National Bureau of Economic Research.

Get ready for the budget, Harris said. For the average consumer, this means “they eat less often, they replace things less frequently, they don’t travel as much, they roar, they buy hamburgers instead of steaks.”

Although the effects of the recession will be widely felt, each family will experience such pullbacks to varying degrees depending on their income, savings and financial position.

Still, there are a number of ways to prepare that are universal, Harris said.

  • Flow your expenses. “If they hope they’re forced to back off, the sooner they do, the better,” Harris said. This could mean reducing some of the costs you now want and don’t really need, such as the subscription services you signed up for during the epidemic. If you do not use it, lose it.
  • Avoid variable rates. Most credit cards have a variable annual percentage rate, which means they are directly linked to the Fed’s benchmark, so anyone who carries a balance will see their interest charges jump with each step of the Fed. Homeowners with adjustable rate mortgage or credit home equity lines, which are at a prime rate, will also be affected.
    This makes it a particularly good time to identify your outstanding debts and see if refinancing makes sense. “If there’s a chance to refinance at a certain rate, do it now before the rate goes up further,” Harris said.
  • Deposit extra cash in I bond. These inflation-protected assets, backed by the federal government, are almost risk-free and provide an annual rate of 9.62% through October, the highest yield on record.
    Although there is a purchase limit and you cannot tap money for at least one year, you will get a much better return than a savings account or one year deposit certificate, which pays less than 1.5%.

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