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The Recession Debate
Last year was a volatile one for investors. We experienced market ups (a few) and downs (more than a few) that no one could have predicted. War in Ukraine, the highest inflation in 40 years, and unprecedented interest rate increases were the primary culprits for last year’s slide, and these issues remain. As we head into 2023, it is entirely possible that markets remain unsettled, but we suspect the headlines may turn from inflation and interest rates to focus on the “Recession Debate”.
As we review 2022, inflation and rising interest rates had the most impact from an economic perspective. Close behind was the war in Ukraine and continued supply chain issues, which were plenty significant. But inflation and interest rates ruled the day. Inflation peaked last summer at over 9 percent, its highest reading since 1981! As a result, the Federal Reserve embarked on an unprecedented increase of interest rates, driving the fed funds rate up over 400 percent in just 9 months! This combination whipsawed American consumers. The cost of their food, energy, and entertainment was rapidly rising, while the cost of borrowing increased and the value of their investments took a hit.