What to Do, and Not to Do, as a Recession Looms

Dow drops below 30K as bear market deepens
By John Johnson,  Newser Staff
Posted Jun 16, 2022 9:55 AM CDT
What to Do, and Not to Do, as a Recession Looms
Federal Reserve Chairman Jerome Powell at his news conference Wednesday.   (AP Photo/Seth Wenig)

(Newser) – The stock market actually rose Wednesday in the immediate aftermath of the Fed's decision to raise rates by a whopping 0.75%. Thursday, not so much. Major indexes fell more than 2% in early trading and sent the Dow below 30,000, its lowest level in more than a year, reports the Street and CNBC. In short, the new bear market only deepened. Now the big question: Will a recession follow? A look at coverage, including some of the many advice pieces now moving:

  • Context: A recession might well be on the way, if it hasn't already arrived, writes Jeff Sommer in the New York Times. Its dry definition—"a significant decline in economic activity that is spread across the economy and lasts more than a few months"—doesn't capture the "grim" economic toll it will take on households. But Sommer puts things in context, noting that recessions and bear markets might be more common than you think. The US, in fact, has been in recession 14% of the time since WWII. Among Sommer's tips: Consider putting cash into I bonds from the Treasury Department, as well as money market funds, which will now be paying more interest.
  • Impact: Among other things, the steep rate hike means home and auto loans will continue to get more expensive, and you'll pay more in interest on credit card debt, per Axios. The average rate for a 30-year fixed mortgage, for example, is now about 6%, double last year's figure. And the average rate for credit cards is now 16.7% (and rising), up from 16% last year.

  • How bad? CNBC rounds up the opinions of economic strategists, and they seem pretty certain a recession is imminent. For example, Andrea Dicenso of Loomis Sayles puts the chances of a global recession at 75%. The silver lining: Dicenso and others say the Fed's aggressive action could make the recession a "shallow" one and thus less painful. "If it's a shallower recession, which I suspect it would be in the third quarter, the Fed actually has some room now to come back off of some of those rate increases," says Michael Yoshikami of Destination Wealth Management.
  • Advice: A Washington Post column by Michelle Singletary has tips on handling a bear market and a possible recession. The first is in the don't-panic vein. "Just shift your view a little bit and look at this as an opportunity if you're a longer-term investor," says one strategist. But in terms of tangible things to do: Eliminate credit debt, perhaps with a low-interest personal loan or a balance-transfer credit card. (See a related point in the item below.) Also, consider a side gig to boost emergency reserves, because "the standard advice of having three to six months' worth of living expenses may not be enough."
  • What not to do: Veronica Dagher at the Wall Street Journal digs into three common mistakes people make at such times. One is dipping too deeply into emergency funds to pay off credit card and other debt. It's a balancing game that requires more finesse. A lot of people also reduce or eliminate allotments into their 401(k) funds, but that has some drawbacks, including the loss of employer matching funds. A third is not changing spending habits at all.
(Read more economy stories.)

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