If you’ve been to the grocery store or filled up your gas tank recently, chances are you’ve seen an increase in prices. Inflation hit a 40-year high in January of this year, and it continues to remain much higher than usual.
Last time inflation rates were as high as they are now, the Federal Reserve intervened by raising interest rates. The recession of 1981-82 followed. There are a lot of similarities between the early 80s and now, but does that mean a recession is imminent? Here’s what the rest of the year might look like:
2022 Rising Interest Rates: Expected Hikes
No one knows exactly how the year will pan out, but it is assumed that the Fed will raise interest rates multiple times this year.
The first rate increase will likely happen in March, and it’s not expected to slow down until 2023. Many experts are estimating seven rate hikes this year, but again, no one knows that for sure yet. The problem is that inflation hit a high rate of 7.5% in January, which is substantially higher than the 2% increase that is generally expected. The Fed wants to bring that rate down, but it’s a delicate balance. That’s why they will likely impose several gradual interest rate increases over the year, instead of fewer, larger ones.
In New Hampshire, we’re seeing increases that the rest of the country is seeing, including gas, used cars and groceries. But in addition, we’ve seen an especially high increase in housing prices. According to the New Hampshire Association of Realtors, housing affordability hit an all-time low in January of 2022. The median price for a New Hampshire home in January was $399,700 – which is up 14% from last year.
The Russia-Ukraine War
The European Union, US, Canada, the UK and others have placed sanctions on Russia following its invasion of Ukraine, and the markets are responding. Stocks have fallen and commodities have gone up, but again, it’s difficult to predict what impacts this war will have on markets around the world.
Oil prices are also expected to rise, as Russia is a major oil exporter. The cost of oil was already on the rise due to inflation, and that will most likely continue to be the case following Russia’s invasion of Ukraine.
This has a trickle-down effect, because when gas prices increase or the supply chain tightens, it costs more to make and ship goods. That leads to more prices going up, on top of the inflation we’re already experiencing.
2022 Rising Interest Rates: Will a Recession Follow?
There are two major factors at play that could contribute to a recession: the Fed increasing interest rates to temper inflation, and the Russia-Ukraine conflict. Either one of these situations would be an economic red flag, but dealing with them at the same time increases the odds of a recession.
As the entire world tries to regroup from the pandemic, markets are already on shaky ground. Rising oil prices due to the Russia-Ukraine conflict could certainly have an impact worldwide. But again, time will tell how this plays out, and how well markets and economies can handle the effects.
Many experts have put the odds at greater than 50% for a recession within the next couple of years. While we continue to watch those recession signals, here are some tips to help you prepare for market volatility.
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