Halloween was confusing. All my life my parents said, 'Never take candy from strangers.' And then they dressed me up and said, 'Go beg for it.'"
– Rita Rudner
“BOO!”
Itisthe time of yearfor goblins, scary movies, and pumpkin spice everything. Ollie, Lincoln, & I picked out pumpkins last week and now we are ready to watch some “scary” movies, maybeCasper the Friendly Ghost.
The economic talking headshave been saying“BOO”for months. Historically speaking, as the Federal Reserveraises the Fed Funds Ratetofight inflation and cool the economy, recessions are a common by-product.A recession is generally defined as a significant decline in economic activity spread across the economy, lasting more than a few months, typically visible in real income, employment, industrial production, and wholesale-retail sales. In more practical terms, it is often described as two consecutive quarters of negative economic growth as measured byGrossDomesticProduct (GDP).
Our understanding of the economy is grounded in the belief that maintaining inflation around 2% is essential for several reasons. If inflation rises significantly above this threshold for an extended period, it can have adverse effects on the financial markets.
Inflation occurs when there's an imbalance between what people want to buy (demand) and what's available in the market (supply). At present, our economy is experiencing higher production levels and increased employment opportunities. However, our spending is surpassing what we can produce, creating this imbalance. Picture Halloween costumes flying off the shelves – the demand is high, but there's only a limited supply. Similarly, our spending is outpacing what we can produce, leading to economic imbalances and higher prices.
Bringing inflation down to the desired 2% level requires a reduction in consumer spending. If this adjustment doesn't happen naturally, central banks might need to maintain higher interest rates for an extended period. Higher interest rates influence borrowing and spending, potentially leading to reduced demand and, in a probable case, a recession. The timing of these actions is crucial in maintaining economic stability.
To swiftly bring inflation back to the 2% target, there might need to be a significant and rapid adjustment, although this might be uncomfortable. Alternatively, a slower approach might be chosen, prolonging the process. Regardless of the method, the ultimate outcome remains the same: the economy will reset, paving the way for new growth. During this period of adjustment, it is vital for us to be cautious in our economic approach, ensuring your investments are positioned to weather the storm effectively.
Your trust and confidence in our expertise are invaluable. Rest assured, we are closely monitoring these economic developments and are prepared to adapt your investment strategy as needed to navigate these challenges successfully.
If you have any questions or concerns about your portfolio or the current economic situation, please do not hesitate to reach out. We are here to support you every step of the way.
My Best,
Ryan