4 Reasons the Economy Looks Like It’s Collapsing – And What to Do About It

Inflation was rampant, and the Federal Reserve’s tool to fight price increases was its ability to raise interest rates. This makes borrowing more expensive and slows the economy – on purpose.

The problem is that the Fed has been very disingenuous too late in raising interest rates. Inflation has been a growing concern throughout 2021, but the central bank only started raising interest rates in March 2022. So the Fed needs to catch up — and take tougher action than if it had started raising rates last year.

Federal Reserve Chairman Jerome Powell said this month that the central bank would continue to raise interest rates by half a percentage point at the conclusion of each meeting until it was satisfied that inflation was under control — and then the Fed would continue to raise rates by a quarter point over a period.

2. The stock market is in the mode of selling everything

Fearing that higher interest rates will erode corporate profits, investors are turning to the exit.

This is bad news for people’s retirement plans. It’s also unwelcome news for a number of investors who rely on the market for income, including day traders who have counted on the stock market’s growth in almost a straight line during the better part of the decade. It’s also not great for consumer sentiment.

This is potentially bad news for the economy, because consumer spending makes up more than two-thirds of America’s GDP.

Signature 3. Bond market

When investors aren’t very interested in stocks, they often turn to bonds. Not this time.

This usually happens when the Fed raises rates – the higher cost of borrowing makes bonds less valuable when they mature, so paying the bond’s higher interest (yield) will help offset it and make it more attractive to investors.

Bonds were also sold as the Federal Reserve decided to unwind its huge portfolio of Treasuries it has been buying since the pandemic to prop up the economy.

Sign 4. Chaos around the world

What happens abroad can spill over to the United States as well, hurting the American economy at the worst possible time.

what should be done

Securing a new job now: With extremely low unemployment and an abundance of job opportunities, it is a market for job seekers. That can change quickly in a recession.

Take advantage of the housing boom: If you’re on the fence about selling your home, this might be a good time to put it on the list. Home prices in the US are up nearly 20% year over year, but mortgage rates are on the rise as well, which will eventually dampen demand.

Put some money aside: It is always a good idea to have liquid assets – cash, money market funds, etc. – to cover urgent needs or unexpected emergencies.

Finally, some wise advice for any market: Don’t let your emotions control you. “Stay invested, and be disciplined,” certified financial planner Mary Adam says. “History shows that what people – or even experts – think about the market is usually wrong. The best way to achieve your long-term goals is to keep investing and stick to your custom.”

CNN Business’s Alison Morrow and Jane Sahadi contributed to this report.