Tag: Personal Finance

When prices surge across various sectors of the economy, you’ll start hearing analysts talk about inflation. Inflation is the devaluation of currency over time, meaning as goods and services become more expensive, the buying power of your money decreases.

People will often first notice inflation by realizing that something they buy regularly is more expensive than usual—maybe your grocery store or gas pump receipt is higher than expected. But not all prices rise at the same rate, and some consumers may find they aren’t spending any more than they were a year ago.

This begs the question: how is inflation measured? While it seems like a straightforward question, calculating inflation is complicated. The economy is vast and complex; not everyone is interested in the same goods and services.

To understand how inflation is measured, we must closely understand the consumer price index.

Key takeaways

• Inflation refers to an overall increase in the price of goods and services within the economy.
• Changes in a price index, such as the CPI, measure inflation.
• Other price indices, such as the PCE and core inflation, help address some of the shortfalls of relying solely on the CPI.

What is Inflation?

Inflation is a reflection of the overall change in prices throughout the economy. Inflation refers to a general price increase, while deflation is a general price decrease.

Don’t mix these terms up with stagflation, which refers to a specific scenario in which both inflation and unemployment are high. Stagflation is tricky for the Fed since raising interest rates to combat inflation may lead to further unemployment.

Analysts calculate inflation by observing the price changes in a basket of goods and services. This basket usually contains a large number of items that most Americans buy in their daily lives, such as gas, groceries, and medical supplies. Data collectors record the prices of these items every month to determine whether they have fallen or risen overall.

Typically, inflation reports are released each month. Inflation figures can be volatile from one month to the next, particularly if you hone in on an individual good or service. Thus, these reports show 12-month changes as well to give a more complete picture of the overall price trends.

Measures of Inflation

While the U.S. Consumer Price Index (CPI) is the most well-known measure of inflation, several other measures attempt to capture price changes. Each of these measures can be useful for different consumers and businesses.

Consumer Price Index

The Bureau of Labor Statistics (BLS) is responsible for the CPI. The CPI captures the price change consumers pay for goods and services over time.

The CPI figure most consumers hear in the news reflects the entire basket of goods and services. However, indices are also available by geographic area and for specific verticals of goods and services.

The CPI weighs each item in its basket according to how much the average American spends on said item. In other words, goods and services that make up a lower percentage of Americans’ spending have a more negligible impact on the CPI. The BLS uses the Consumer Expenditure Surveys (CE) program to revise each item’s importance within the basket of goods and services.

Items enter the CPI sample through a process called initiation. A CPI data collector goes to a store and selects an item from a pre-selected category. For example, they may choose a box of cereal available in two sizes. Data must be collected on how many people buy each size to determine their purchase probability. Then, the data collector will randomly choose one of the sizes and track its price every month.

Items naturally rotate out of the CPI basket every four years. The BLS records the prices of roughly 80,000 items each month, divided between eight groups, including:

• Food and beverages
• Housing
• Apparel
• Transportation
• Medical Care
• Recreation
• Education and communication
• Other goods and services

Personal Consumption Expenditures Price Index

Another popular inflation measure is the Personal Consumption Expenditures (PCE) price index. While not as widely known as the CPI, the core PCE (meaning it excludes food and energy) price index is important because the Federal Reserve uses it when setting monetary policy. The Bureau of Economic Analysis develops this measure.

Like the CPI, the PCE price index comprises a basket of goods and services, but the relative weights of different categories are very different in some cases. Here are some of the critical differences.

CPI reports from 2022 gave shelter a “relative importance” (the percentage of money dedicated by consumers to this category) of roughly 34%. In comparison, the PCE weighed shelter during the same period at around 16%. Similarly, in 2015, the BEA reported that it weighed the importance of medical costs at 22%, while the CPI gave it a relative importance of 8.4%.

According to the Brookings Institute, one reason for the difference in weights for medical costs is that the PCE price index includes all consumption items. For healthcare, the PCE captures costs like premiums and deductibles in addition to expenses covered by employer-sponsored health insurance and Medicare. The CPI, on the other hand, only captures direct costs to consumers.

The result of these different weights is that they affect their indices differently. For instance, changes in healthcare costs will significantly impact the PCE, while changes in housing prices will affect the CPI more.

Plenty of articles argue whether CPI or PCE is the better index. The PCE has a reputation for being less volatile than the CPI. But others prefer the CPI as they think it better represents inflation’s impact on consumer spending.

Core Inflation

Core inflation can use any number of indices, such as the CPI or PCE, as its base. It then omits certain items every month, such as gasoline and food prices; these items can be volatile and are only sometimes representative of overall price trends.

As expected, removing the most volatile items from the inflation measure does present a more consistent picture of inflation. However, core inflation can still be skewed in some cases.

To help understand why, we can compare core CPI to the Cleveland Fed’s trimmed-mean CPI. While the core CPI excludes the same items every time it is measured, the trimmed-mean CPI removes whichever goods and services are the most volatile in a given month.

One can surmise why the trimmed-mean CPI’s approach would lead to more predictable results. For instance, one-off events such as natural disasters could cause a sudden and unexpected surge in the price of ordinarily stable items. Adjusting for those events every month means the trimmed-mean CPI will represent the overall price trends more.

Why are There so Many Ways to Measure Inflation?

When we hear news reports about inflation figures, we usually hear CPI data from the BLS. But as should be clear to you now, the CPI is not perfect. In reality, no measure of inflation is entirely accurate, and focusing solely on the CPI does not give us the whole story.

At the same time, different people will care more about price changes in different parts of the economy. For example, railroad companies will be less concerned about the price of a gallon of milk and more about the cost of diesel fuel.

Likewise, consumers living in Chicago will be more concerned about inflation numbers for their city than about inflation in Los Angeles. These nuances mean multiple indices are needed to paint a complete picture of inflation.

Limitations of the CPI

The Consumer Price Index is limited in what it can tell us and its accuracy. When looking at the CPI, remember that it isn’t telling you the actual prices of items around the country. You won’t be able to look at the report and determine whether eggs are cheaper in Montana or Oklahoma, only where the price of eggs increased faster.

The CPI is also not applicable to all population groups. The CPI-U, for example, records prices for items sold in urban populations. The elderly buy different things than teenagers, so a rising overall inflation rate may not reflect a price increase for items you’re buying.

The CPI should not be used to determine living costs around the country. The BLS calls the CPI a “conditional cost-of-living measure” because it does not reflect expenses taken on through different social and environmental factors (including taxes).

There will always be sampling errors and non-sampling errors related to data collection. Consider looking through more than one index to understand general price trends in the U.S.

Final Words

Inflation represents a general increase in prices for goods and services across an economy. Analysts measure inflation by looking at price fluctuations within an index. The most well-known price index is the CPI, which the BLS releases as a monthly report. There are other measures of inflation, such as the PCE price index and core inflation. These measures help address issues with the CPI. For instance, they sometimes remove highly volatile items or weigh swing-prone items differently.

Measuring inflation is a complicated task, meaning a single measure of inflation can be skewed or fail to represent certain regions or industries. Having multiple measures of inflation helps paint a complete picture and addresses the nuances of a complex national economy.

The post How is Inflation Measured? Understanding the Consumer Price Index appeared first on Due.

Do you have little work experience, but would like to work remotely? You may seem that you’re out of luck. Since so many “entry-level” jobs require 2+ years of experience, finding high-paying online jobs with no experience may seem nearly impossible. As it turns out, it’s not as difficult as it seems.

As a matter of fact, there are many exceptional options available. Even better? Not only are these 17 jobs online, but they’re high-paying and require no experience.

1. Data Entry Clerk

An entry clerk takes information from another source, usually digital, like a spreadsheet, a printed document, or an order form, and inputs it into another. As well as checking for errors, they might have to verify information as well. For instance, it might be necessary for a financial account processing company to hire data entry clerks to input invoices or verify bills.

Data entry clerks and keyers with a high school diploma and no work experience are commonly employed as part-time, full-time, or freelancers. Due to the digital nature of the data and information companies process today, this is a common work-from-home opportunity. What’s more, data entry doesn’t always have to be done during business hours, so it can be good for those who want flexible hours.

As of 2023, the average salary is $17.54 per hour.

2. Rep for a Contact Center

Virtual contact centers are becoming more and more popular today. In order to get hired, you don’t necessarily need to have experience – as long as you are able to communicate clearly in writing and verbally. Moreover, you can work from home and take care of all your responsibilities

Typically, entry-level contact center representatives are the first points of contact for customers. Most support will be provided via phone or online chat, but you might also respond to emails. Support roles, however, tend to have strict work schedules. Even if you work from home in another country, if a company’s clients are based in the U.S. you must work U.S. hours.

The average salary for contact center representatives is $35,830 per year. Part-time workers typically earn somewhere around $17.23 per hour.

3. Virtual Assistant

A virtual assistant, or VA, is another job that can be done remotely without any experience. Virtual assistants can perform a wide range of tasks, including:

• Administrative duties. Setting up appointments, scheduling meetings, responding to emails, and planning social events.
• Data entry duties. Updating specific data sets.Updating specific data sets. Making sure spreadsheets are up-to-date, etc.
• Lead generation. Inputting prospects into a spreadsheet after qualifying them online — and finding their contact information.

Virtual assistants are often hired by companies without any prior experience, and all essential skills are taught on the job. To get hired (or do a good job), however, you do need a certain skill set. Virtual assistants must have the following skills:

• A keen eye for detail
• Strong organizational skills
• Being able to multitask
• Knowledge of technology

An average salary range is between $21,000 and $60,000.

4. Proofreader or Copy Editor

The main goal of proofreaders and copy editors is to ensure that written text is free of errors. Often, proofreaders check a document for grammatical and style errors, incorrect formatting, and typos before it is printed, published, or posted online. As well as ensuring accuracy and clarity, copy editors may also modify the sentence structure or paragraph structure of a written work.

Proofreaders and copy editors may be hired on a part-time or full-time basis by companies producing large amounts of written material, or they may be hired as contractors or freelancers on an as-needed basis. You should expect to take a skills test before getting hired as a proofreader or copy editor if you have a good understanding of English spelling and grammar conventions. The more familiar you are with a company’s style guide or the subject matter it deals with, the better.

In some cases, copy editors and proofreaders can find positions without prior professional experience. They tend to have English, communication, or similar degrees, but not always.

$50,010 is the average salary for proofreaders in 2023. Copy editors will earn an average of $52,733 in 2023

5. Search Engine Evaluator

In spite of the fact that the majority of search engine results are controlled by algorithms, companies still hire people to refine them. Why? A search engine evaluator double-checks what the algorithm produces because algorithms aren’t perfect.

Usually, you don’t need any experience to get this online job. A solid sense of written communication and attention to detail is all you need instead. In no time, you might be able to earn around $44,964 annually.

6. English Teacher

Are you a native English speaker? In that case, you can teach English to students around the world — remotely.

Almost everywhere in the world, from Europe to China, native English-speaking teachers are in high demand. It’s a great opportunity to work online without experience as long as you know the English language and is skilled in teaching or tutoring.

It’s worth noting, however, that most companies hiring ESL teachers require teaching certification, as well as TESOL or TEFL certification, so we recommend looking into it. There are some companies, however, that will accept native-level fluency in English and a bachelor’s degree in lieu of a teaching background.

Salaries typically range from $33,000 – $67,000.

7. Tutor

Working remotely as a tutor is another popular option. It is especially true if you are knowledgeable about a subject and want to help others learn

It’s not always a requirement, having a bachelor’s degree or a master’s degree in the subject you want to tutor would be a plus.

Here is a list of companies that hire online tutors.

An average salary is between $22,000 – $84,000.

8. Social Media Coordinator or Manager

Organizations are increasingly in need of social media coordinators and managers as their online presence becomes more important. Social media coordinators and managers may handle tasks such as:

• Creating social media posts and scheduling them.
• Designing the copy and graphics for these posts
• Responding to audience comments and questions on social media.
• The monitoring of social performance.
• Planning and executing social media marketing campaigns.

There are many different types of social media managers, from entry-level positions at smaller companies without marketing departments to higher-level positions with responsibilities and direct reports at larger companies. Generally, social media coordinators are entry-level or early-career employees.

From local restaurants to giant tech companies, you can find remote positions for social media managers and coordinators, which can be full-time, part-time, or freelance. You’ll need a solid understanding of Facebook, Twitter, Instagram, and TikTok if you want to become a social media manager or coordinator. If you can show examples of accounts you have successfully managed, either your own or someone else’s, that will help.

Additionally, you should be able to write well and analyze data. Many jobs will require a degree in marketing or a related field, even if you don’t have a bachelor’s degree.

Social media coordinator salaries in 2023 will average $42,870, while social media manager salaries will average $54,755.

9. Advertising Sales Rep

Despite what it may seem, marketing experience isn’t necessary to become an advertising sales rep. In fact, it’s a great way to begin your advertising career even without any prior marketing experience. Sales representatives, however, need excellent interpersonal skills. It’s your job, after all, to persuade prospects to buy your employer’s products or services, and to do that effectively, you’ve got to be good at writing and speaking.

In addition to selling ad space, you can create ad copy and take on creative duties. Additionally, you can earn around $52,340 if you choose this online job.

10. Content Writer

Professional content writers create articles, blog posts, interviews, and other forms of content for websites. A content writer’s primary goal is to create content that:

• Educates or entertains visitors to a website.
• Increases website traffic.
• Search engine optimization makes the site rank well.

Content writing jobs are typically work-from-home opportunities requiring no prior work experience. The catch? You should possess strong writing skills and know the basics of search engine optimization (SEO).

If you want to land a remote content writing job, you’ll have to create a writing portfolio that proves you have strong writing skills– despite lacking work experience.

If you are a content writer, you can work remotely as a full-time employee or as a freelancer.

The average salary for a content writer is $50,936.

11. Graphic Designer

An organization, brand, or individual uses graphic designers to communicate ideas, messages, and aesthetics. A graphic designer creates digital art or converts handmade art to digital format using words, images, or both. In addition to logos, product packaging, infographics, social media images, and even elements of websites and software programs, graphic designers can design almost anything a company needs. The majority of graphic designers’ work is done online using a computer and other equipment they can easily keep at home once they know what their employers or clients want.

Depending on the needs of the company or its clients, companies might hire full-time or part-time designers or contract with freelancers whose work they enjoy. Creative and artistic skills are essential for a graphic designer, as are a strong understanding of photography, design, and layout software.

To make sure you’re on the same page with whoever you’re designing for, you need strong communication skills. In general, graphic designers have bachelor’s degrees, but a strong portfolio of their work is vital. A graphic designer’s average salary in 2023 is $49,061.

12. Translator

If you are able to translate a document in one language into another, then you may be able to begin a career as a translator. It may not be necessary for you to have any other experience if you have that.

During the hiring process, you may be required to demonstrate fluency, for example, by taking a test. It is not always necessary to receive a formal education in your secondary language. If you get a full-time job, you could end up making around $49,110 a year sooner than you expect.

13. Software Engineer

Another remote job that you can get without experience is software engineering. The majority of programming jobs online require just 2 things: knowledge of a particular programming language and the desire to learn it.

This job, however, has a much higher barrier to entry than the others. Even if you’re willing to learn to code in your spare time, it may take you 6 months to a year to get a remote coding job without experience.

You can find a lot of resources online if you are interested in software engineering, such as:

• Codeacademy
• Boot.dev
• Code.org

In general, the average salary is over $90,000.

14. Community Manager

Managing a brand’s audience across social media groups, Slack channels, online forums, and other communities is the responsibility of community managers. Answering questions, moderating discussions, and adding and removing people from groups are all common tasks that community managers perform as well. If you’re an extrovert who doesn’t get drained from chatting with people all day, this could be the perfect online job for you.

An ideal community manager is familiar with social media and enthusiastic about it, as well as having excellent writing skills. There is no requirement for prior experience or a degree to get this job.

In 2023, the average salary is $56,468.

15. Photo Editor

The best part of being a photo editor? Your skills can be honed on your own schedule. If you can demonstrate your skills in enhancing, refining, adjusting, and combining images in a portfolio, you may not need any formal experience.

Depending on the nature of the job, pay rates may vary. An average full-time worker earns $70,762 or more. Additionally, you can freelance, which gives you more control over your schedule and earnings.

16. Travel Agent

The long-haul flight market has returned to life after a few years of lockdowns. Due to this, the demand for travel agents has skyrocketed.

The average salary pre-COVID was around $46,500, according to data published by the Bureau of Labor Statistics. It is reported that some agents earn between $250k and $500k at the top end of the market.

Essentially, this is a sales job, but having traveled to destinations can enhance conversations with clients. Additionally, you may need to arrange accommodations, flights, rental cars, and attraction tickets. But, clients often return to trusted agents after developing great relationships with them.

17. Online Researcher

It is common for companies to hire online researchers when they need data from online sources. Based on the company’s needs, these professionals search the internet for various kinds of information.

It is possible to make an impressive $59,711 per year as an online researcher.

FAQs

Can you really land an online job with no experience?

Remote jobs are available to anyone, even if they have never worked from home before or have little professional experience. Generally, when it comes to remote work, employers are more interested in your skills and qualifications than in your past work experience. As such, this shouldn’t prevent you from applying for jobs.

It is likely that higher-paying remote positions require work experience of some kind. But you can adjust to the remote aspect if you work with your team and learn how to use virtual office software.

What is the best place to find high-paying jobs that don’t require remote working experience?

Remote job boards are widely available online. Finding high-paying gigs will require you to sort through the listings and find those that match your abilities and expectations.

Below are some platforms worth exploring:

• There are remote jobs available on We Work Remotely for designers, developers, writers, customer support, and more.
• There is a job board called FlexJobs that specializes specifically in remote, flexible work.
• Remote.co curates jobs in diverse industries from remote locations.
• Online marketplaces like Freelancer connect freelancers with employers, many of whom are looking for remote employees.
• On Upwork, freelancers can find jobs in a variety of industries.

If you don’t have relevant experience, how will you be able to land a job online?

You can still snag a great online job if you don’t have any experience that’s directly relevant to the role you want.

Here are a few tips to get you started:

Identify the skills you need for the job you want.

Knowing what employers seek in candidates for a given position is always helpful before figuring out how to sell yourself. Read through a few job descriptions for the type of job you want to identify what skills and experience employers want.

Your job search should focus on your transferable skills.

Skills that you have used in one situation can be applied to another that seems unrelated. You could, for instance, work as an executive assistant if you coordinated the schedule for a student or parent group. Make sure your resume, cover letter, and interview responses demonstrate these skills.

Earn a certificate or take an online course.

You can always learn skills you need for a job you’re interested in but don’t have. As such, a certificate or an online course may be of interest to you. On sites like Coursera or LinkedIn Learning, you can learn marketable skills for free or at a low cost, or you can enroll in an accredited online course.

Consider applying for an online internship.

It’s common to look for an internship first after completing your education or certification program. Nevertheless, this is an option that is often overlooked when dealing with online businesses. You can gain real-world experience and skills through an online internship that can make you a more valuable candidate for either the employer you interned for or another one.

Create an online portfolio (if applicable).

Any professional who produces creative work for an employer needs a strong portfolio. This includes writers, designers, software engineers, social media managers, etc. Put all your best work in one easy-to-access place with an online portfolio. On your resume, you can link to it directly. Employers can see your skills and personality even if you haven’t worked in the field before, through graphics, articles, programming projects, or other projects you would produce in your job.

Make employers aware of your skills as an online employee.

An employer wants to know that if they hire someone who won’t be in the office every day, they’ll still be able to complete their work on time and won’t struggle to keep up without being there. As such, be sure to stress your independence through the hiring process, as well as your communication, problem-solving, organizational, and time management skills, and prepare for common remote interview questions.

How can you avoid scams?

A rule of thumb is to avoid online roles that seem too good to be true or where it seems you don’t have to do much to get paid. Any job claiming “work 6 hours a week and make $1,500” should be ignored, for example.

Likewise, avoid jobs that require you to pay upfront for supplies or application fees. When you are asked to prepay for inventory as an independent “distributor” or “business owner” for a larger company (or as a product assembler, package reshipper, or processor), you should consider this a warning sign. It’s either a scam or a pyramid scheme, which is illegal. Or, in the best-case scenario is that you’ve joined a multilevel marketing firm.

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On March 22, 2023, the Federal Reserve raised the target fed funds rate from 4.75 to 5.00%. This marked a 475 bps increase in interest rates since March 2022. With the Fed’s next planned meeting scheduled for May 2023, many are wondering if the Fed will continue the trend of aggressive rate hikes, keep rates stable, or begin lowering rates.

Higher interest rates can have undesirable consequences, including costlier borrowing and an uptick in unemployment. They can also contribute to a bearish sentiment among investors, thus driving down stock prices.

In this article, we’ll discuss how the Fed makes its decisions regarding interest rates and whether we think it’s likely the Fed will raise rates in the coming months.

Key Takeaways

• The Fed has raised rates by almost 500 basis points over the last year.
• The Fed may not begin to ease rates until later this year.
• As experts debate whether the US economy will enter a recession, you can think of ways to protect your finances from an economic downturn.

Why are they raising rates?

Fed chair Jerome Powell is adamant about controlling inflation, even if it hurts the economy in the short run. The week before its most recent rate hike in March, the Fed saw data from the Consumer Price Index. The CPI showed prices had increased 0.4%, well below the Fed’s ideal inflation rate (2%) but still high enough to incentivize the Fed to raise rates a quarter of a percent.

The CPI’s February data showed prices were up 6.0% year-over-year, marking the eighth consecutive drop in year-over-year interest rates. This is a positive sign, as it shows inflationary pressure is slowly loosening, but this doesn’t mean the Fed will start lowering rates at its next meeting in May.

An inflationary environment can create a dangerous spiral where prices rise, leading to workers demanding higher wages. Employers then pass the cost of higher wages to consumers, pushing the cost of goods and services higher, and the cycle repeats.

The Fed wants to avoid that situation. When it raises interest rates, borrowing becomes more expensive. Thus, buying a house or car is costlier. Because the fed funds rate impacts the rate at which banks borrow from each other to meet reserve requirements, higher rates tend to push up interest rates on savings products. Banks want to encourage consumers to deposit their money into savings accounts as it lets them borrow less from each other.

The general result of higher interest rates is that people have less money they’re looking to spend, forcing businesses to decrease prices.

While this economic slowdown can lead to higher unemployment and slower wage growth, the Fed views it as a necessary course of action to blunt runaway inflation. Unsustainable economic growth can lead to a situation like stagflation, in which inflation and unemployment are both high, causing widespread stagnation in growth.

What causes a lowering of rates?

The Federal Reserve lowers interest rates to encourage spending and investment. When the Fed lowers interest rates, borrowing becomes cheaper, and consumers and businesses spend more.

Some segments of the economy are more sensitive to interest rate changes than others. The real estate market is the best example because most people borrow money to purchase a home.

Interest rate hikes make it more expensive to borrow to buy a home, which tends to cause a decline in sales. Conversely, when rates drop, borrowing money to buy a home becomes cheaper, so housing sales increase.

If you’re the rare person with the money to buy a house without borrowing much, buying a house when rates are high may be financially advantageous. This is because high interest rates tend to mean low demand for homes, giving you more negotiating power and increasing your chances of getting a house for below the asking price.

Recent history of easing and lowering rates

Rate cuts have been modest in recent history compared to earlier periods, such as the 1990s. However, interest rates haven’t exceeded 10% since then, so there hasn’t been as much to cut.

The most significant rate cuts in recent years came with the Great Recession and the dot-com bubble — rates dropped by about 5% in each case. The COVID-19 Recession led to the Fed lowering rates from just over 2% to near-zero.

There were slight drops from the mid-1990s until 2000, but none were especially notable. However, there was a significant drop in rates in the early 1990s. Back then, rates dropped from nearly 10% to about 2.5% within a few years.

The Federal Reserve tends to act fast when it cuts interest rates. While it usually takes a phased approach, it has completed its recent cuts within a few years. The reductions due to the pandemic were quicker. The Fed cut rates from 2.75% to near-zero in less than one month.

How does this impact my portfolio?

The general rule is that rate cuts are good for stock portfolios, and rate hikes are bad for them. After all, rate cuts tend to mean more economic activity, while rate hikes mean less economic activity. For example, the S&P 500 dropped 1.6% when the Fed announced the latest rate hike.

Remember that the economy is complex, so we cannot simply say a rate cut will push stocks higher while a rate hike will make them tumble. Many other factors can influence the economy and, thus, stocks.

The war between Russia and Ukraine is a recent example of this. It has led to an energy crisis that has strained the global economy. Thus, there is no guarantee that a rate cut will boost your stock portfolio, especially when the world is experiencing a crisis of this magnitude.

The relationship bonds have with stocks may also be a factor. Bond yields increase as interest rates rise, making stocks less appealing. At the same time, the price of existing bonds usually decreases when rates increase. This is because bonds typically have a fixed rate. Existing bonds have comparatively low rates if rates go higher, making them less enticing investment products and driving down their price.

With bond yields, however, the present value of future earnings may decrease, and at the same time, bond yields could increase. Hence, more investors may turn to bonds, putting downward pressure on stock prices.

What will the Fed do in May?

Data from price indexes influence the Fed’s decision to raise or lower rates. The Fed prefers to use the Personal Consumption Expenditures (PCE) price index to gauge inflation. Still, data from the Consumer Price Index (CPI) is helpful to consumers in predicting what the Fed will do.

The next PCE release is scheduled for April 28, 2023. This will come immediately before the Fed’s meeting between May 2 and 3. The next CPI report, meanwhile, will be released on April 12. The Fed needs to determine if its rate hikes are affecting the economy as intended, which inflation data can elucidate.

Recent news from Fed officials has suggested one more rate hike is likely this year. Analysts expect rates could begin dropping as soon as September of 2023. We probably shouldn’t plan to see rate cuts of more than 50 basis points by the end of 2023. The Fed walks a thin line between managing inflation and protecting the US economy from recession.

What to do if there’s a recession

Many people fear that rate hikes and downward pressure on the economy will lead to recession, even as the Fed hopes to achieve a “soft landing.” Multiple factors go into calling a recession, and rate hikes don’t automatically translate to one.

In the event of a recession, there are specific actions you can take as a consumer to protect your finances. One is to consider your spending habits and make a budget tailored to getting what you need and minimizing what you can go without. Consider savings products with high interest rates or stocks in sectors that aren’t as influenced by decreased public demand (utility companies, groceries, discount retailers).

You can also prepare yourself for worst-case scenarios. If the economy enters a recession and your company plans for a series of layoffs, making yourself essential to your team beforehand can reduce the chance of you being let go. You can also update your resume so you’re prepared to jump back into the job market immediately if a layoff happens.

The Bottom Line

In the current economic environment, the Federal Reserve is determined to bring inflation under control. That means aggressive rate hikes until the economy has cooled off sufficiently. Many economists believe rate hikes will stop by this summer, and rate cuts could happen as soon as the fall of 2023.

While the Fed will eventually cut rates, stock market investors should prepare to weather the storm ahead. Learn about ways you can protect your money when rates are high, and think about saving more of your money while rates on savings products are high.

The post The Fed Has Been Raising Rates, But What’s Next? appeared first on Due.