Why Inflation Is on the Rise – And What It Means for Investors
It’s no secret that the record highs the market had been enjoying over the last few months now appear to be over, and the Dow, NASDAQ, and S&P 500 are all on the decline.
But what you may not know is that there’s another financial pitfall looming as well. Inflation is poised to take off in a big way. What’s happening, and what can you do to prevent it? Here’s a brief rundown.
Inflation and Interest Rates
As you’re no doubt aware, the Federal Reserve recently voted to raise the interest rate again, bringing it to a range of 0.75-1%. Ostensibly, they do this to maintain balance in the economy, and are only supposed to raise the rate when they feel we’re financially strong enough to endure it. However, it’s clear from the aftermath that the economy isn’t strong enough, and the markets continue to decline significantly. In spite of this, the Fed has projected two more rate hikes for the coming year.
So what happens when the interest rate goes up when the economy is weak? The rise in mortgages and credit card interest means less disposable income. As a result, businesses, which are already suffering in the markets, decline even further. Prices go up to make up for this loss, but these same, suffering companies can’t afford to raise incomes to match. The result is inflation, and, if the trend continues, eventually recession.
The Decline of the Dollar
Meanwhile, something else is declining besides the markets: the U.S. dollar. Last year, the dollar was on the rise, due in large part to the decline of other currencies, such as the pound and the euro. In the wake of Brexit, people turned to the dollar instead, and its value soared, rising nearly 4 and a half percent against the euro, and two percent in the world at large. Unfortunately, it was only a bubble.
Now, it appears the bubble is bursting. It recently hit its lowest level in two months, and experts predict it will continue to decline for the foreseeable future. When currency doesn’t go as far as it did previously, that’s the very essence of inflation.
Inflation Expectation vs. Reality
Part of the problem with the current round of inflation is that consumers aren’t expecting it to get as high as it likely will. According to the University of Michigan’s Survey of Consumers, inflation is expected to reach 2.7% in the foreseeable future. This is about average, and has been since 2014.
But a variety of factors, including the rising interest rates, declining markets, and falling dollar value, are likely to push inflation much higher than that. And if the Fed moves forward with its two more planned rate hikes this year, it could send inflation up even more.
What You Can Do
So how can you protect yourself against this coming disaster? There are a few steps you can take. The main thing is, during this time of market volatility, it’s important to find a way to protect your investments and keep from losing everything.
Some experts believe bonds are the way to go, predicting that they’ll trend bullish over at least the next six months or so. However, others believe that the current rise in bonds is merely a bubble, which will burst before long. Even if prices do hold steady for the next six months, they likely won’t do as well long term. If you’re trying to build your nest egg, you need an investment that will remain stable over time.
That’s why a lot of experts are recommending in a Gold IRA. As a physical commodity, it resists inflation, holds steady during periods of market volatility, and generally rises when other prices do. In fact, some are predicting that, as inflation gets worse over the coming year, gold may end up rising to $1,400 or even $1,500 an ounce.
Gold makes a great safe haven investment during uncertain economic times. Since it tends to rise when the markets fall and inflation goes up, it can help protect you against financial disaster. Even if you lose your stock investments, you still have your gold to fall back on and cushion the blow, so you don’t lose your savings.
Inflation is a fact of life, and in the coming months, all signs point to it getting a lot worse before it gets any better. Protect yourself now, before the storm, so that when it does hit, you’ll be able to weather it more effectively.