Many economists believe that the United States (and much of the world) will fall into recession later this year. The main cause will be inflation. Radical solutions have been suggested. Larry Summers, a prominent economist who served as Secretary of the Treasury and President of Harvard, recently told Bloomberg, “The right thing to do is raise taxes now to take some of the demand out of the economy. While this may lower the rate of inflation, it would also hurt GDP growth, as it would reduce the purchasing power of consumers.
There are two sides to the battle for the American economy. One is the Federal Reserve which raised interest rates slightly to slow the economy. His efforts are aimed at not slowing him down too much. The other force is measured by the Consumer Price Index which shows inflation rose 9.1% in June from the same month a year ago – a four-decade high.
Another factor that could be factored in as the economy slumps in the second half of 2022 is consumer confidence. It sent mixed signals. Consumer confidence is weak, as measured by the University of Michigan Consumer Survey. However, retail sales continue to be strong.
The health of the housing market could also affect the direction of the economy. Most people’s greatest asset is the equity in their home. Over the past year, home prices have risen 20% year-over-year in most months, as the closely watched S&P Case-Shiller housing report shows. Home equity has therefore increased for tens of millions of Americans.
The state of the housing market has already started to move in a negative direction, as high mortgage rates have slowed the rise or dented the pace at which house prices have moved. Nonetheless, home prices remain at an all-time high and recently hit a national median of over $400,000.
The US economy has rarely avoided recession during times of extremely high inflation. And this is, despite other factors, the main characteristic of the current economy and will probably be until the beginning of 2023.
Sponsored: Tips for Investing
A Financial Advisor can help you understand the pros and cons of investment properties. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your advisors at no cost to decide which one is best for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Investing in real estate helps diversify your portfolio. But expanding your horizons can come with additional costs. If you’re an investor looking to minimize expenses, consider checking out online brokerages. They often offer low investment fees, which helps you maximize your profits.