We may be in this volatility for the long haul. Many economists studying the markets have released information that they believe we will slide further into a recession in either 2023 or 2024.
Federal Reserve Chairman Jerome Powell has pledged that the central bank will do everything in its power to curb inflation, even if it crashes markets and the economy in the process. To be able to do this, the Fed will have to continue rising their Fed Funds Rate drastically. We are expecting another 75 basis points this week. If done, their rate would go above 3% for the first time since before the financial crisis.
Bridgewater Associates founder Ray Dalio spoke to Market Watch and says that stocks and bonds will continue to suffer as the economy struggles to get its footing. He believes that the Fed needs to get its benchmark rate up to 4.5% to get inflation back down.
We saw U.S. inflation rise to its highest level in more than 40 years over the summer. There are still many consumer-price pressures happening and it is sending the markets into volatility. The ongoing crisis in Europe has also led to increases in costs of everything for consumers.
One other factor Ray Dalio sees as a problem is that the Fed is no longer monetizing the debt issued by the federal government. He says the Fed is planning to double the pace at which Treasury and mortgage bonds will roll off the central bank’s balance sheet.
Dalio does not know who is going to buy these bonds. Thus leading to losses on the bond and stock markets.
We are heading deeper into a recession. The combination of high inflation, monetary policy tightening and a slowing housing market as playing major roles in our economy.
This week, we learned that rents in the U.S. rose to a new record high in August. The national median asking rent was up 11% year over year to $2,309. This is happening as the same time that mortgage rates rose again. The 30-year fixed-rate mortgage increased to 6.25% from 6.01% this week. August Existing Home Sales also fell 0.4% from July to an annual rate of 4.80M.
Across the board, consumers are getting hit from all angles. Our suggestion, keep your money where it is and do not touch it. We have all experienced volatility before and we have learned to wait it out instead of making emotional decisions. Mortgage rates are high for purchases in the market but still very solid for those looking to tap into their equity. We suggest you look into Home Equity Lines or Cash Out Refinances to help curb this volatility.
If you would like to go over your situation and see what the best move is for you and your family, reach out to us today.