We are either on the edge of a recession or already tipping into it, says Jared Franz, Capital Group’s economist. He says the signals are mixed. Consumer spending rose 1.1 per cent in June, but after adjusting for inflation, it is essentially flat. Home sales are declining and inflated pandemic prices are prompting a potential and painful correction. The labour market is one of the only data points that isn’t signaling a recession right now, but experts predict a greater number of job seekers to return in the coming months, bringing up unemployment as companies reduce hiring. In terms of inflation, consumer prices are likely coming down over the next few months as the recession kicks in and demand wanes. There are many signs that inflation has peaked and the bond market is already pricing in expectations that the Fed will cut rates multiple times in 2023. This means the resulting short term volatility requires a shift to quality investments. As the market adjusts to tighter monetary policy, investors should reposition their portfolios to include investments in U.S. Treasuries and agency mortgage-backed securities, as well as opportunistic investments in corporate and emerging markets bonds where they are being compensated for the rising recession risk.
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