US Economic Outlook: What You Should Know
While 2022 turned out to be a challenging year in economic terms, many hoped that 2023 would bring a ray of good fortune. Supply chain disruptions, the lingering debt ceiling issue, geo-political upheavals, and the effect of the fiscal stimulus have seen inflation surge to its highest level in 40 years.
The Fed has tightened aggressively, which has caused a sharp decline in the fixed-income and equity markets. Investors are seeing their portfolios values decline, and the US economic outlook doesn’t look so promising either.
While the end-of-year decline in retail sales and industrial production in the US was a reminder that the economy is slowing, January 2023 saw signs that the economy might still be growing too fast for the Fed’s liking. The recession is widely predicted for 2023.
Here’s what you should know about the US economic outlook and how to hedge your investments against inflation.
Effect on Consumer Spending
It is important to note that consumer spending will have a significant effect from the fading fiscal stimulus. While the aid that was provided in the past years has long gone, consumers are trying to maintain the same level of consumption that resulted due to the aid.
Due to the fiscal stimulus, the personal savings rate, which averaged close to 7% before the pandemic, fell to just over 2% in October 2022. Even though many continue to save, there has been a significant rise in debt to maintain their spending, which is unsustainable and will lead to slower growth in real consumer spending in the years to come.
People who save should consider investing in instruments that protect their purchasing power in the long run. Traditional equities, bonds, and cryptocurrencies are quite volatile and are expected to fluctuate heavily depending on the US economic outlook.
This is where alternative investment instruments such as precious metals come into the picture. Gold, silver, palladium, and platinum are tangible precious metals that have withstood the test of time and can be a viable investment in a bleak US economic outlook.
For over a decade before COVID-19 hit, interest rates remained low. An Inflation rate of around 2% suggests that the Fed’s fund rate should hover around 4%. However, the actual rate was close to zero for 10 years after the financial crisis of 2008. Enter the pandemic, which seems to have jolted markets and the entire financial system, warranting higher interest rates.
The Feds gladly obliged and raised the funds rate dramatically. A rate rise of over 4% in one year speaks of the volume of urgency. Interest rate hikes can cause a lot of pain. Businesses struggle with external financing as their interest costs rise dramatically. This eats into their profits, leading to a decline in stock prices. Therefore, investors with portfolios consisting of equities will most likely see the values of their investments decline.
Moreover, if the corporate bond rate goes above 7%, holders of past bonds issued at low rates over the past ten years will ultimately realize a loss. According to Deloitte, it is predicted that Feds will raise twice more in 2023, which signals further losses to the equity market.
Furthermore, the continued US debt ceiling hikes pose further uncertainty and places immense pressure on the USD, leading to additional turbulence in the financial markets. So how do you protect your investments in such difficult times? It’s quite simple. You should look to invest in tangible precious metals, such as gold, silver, platinum, and palladium.
Benefits of Investing in Precious Metals
Precious metals such as gold continue to play an important role for investors looking to protect their portfolios and diversify their investments in instruments that provide sustained long-term growth and enable an investor to navigate current economic uncertainties while most likely protecting their purchasing power.
As global uncertainties and economic challenges persist, gold’s historical stability and low correlation with other asset classes make it an attractive option for retirement portfolios. As an investor, various avenues and vehicles are available such as Gold IRA’s, gold-backed ETFs, or even physical gold coins and bars.
By having a robust portfolio of precious metals such as gold, silver, platinum, and palladium, investors can help safeguard their wealth and most likely maintain purchasing power in the face of inflation and market volatility.
Despite the emergence of new investment options such as cryptocurrencies and NFTs, gold’s role as a safe haven asset continues to remain relevant. Even though crypto has yielded unbelievable returns, investors have lost over $2 trillion since its peak in November 2021,
Its ability to protect wealth during economic downturns, hedge against inflation, and diversify investment portfolios continue to appeal to investors worldwide. That said, it is also important to work with a reliable precious metal exchange where you can buy, sell and trade these instruments seamlessly.
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