Economic Brief: All Eyes On Inflation For The Remainder Of 2022

Larry Swedroe economic brief all eyes on inflation

While there’s always uncertainty in the outlook for the economy and financial markets, a confluence of events has pushed the level of uncertainty to high levels, namely the Federal Reserve’s battle against inflation, Russia’s invasion of Ukraine and ongoing supply chain struggles. The markets have already priced in these risks, explaining why stocks and bonds have performed poorly this year.

Top Risks

We believe the two biggest risks to the economy are the war in Ukraine dragging on and inflation running hotter than markets expect. In addition, the effects of reduced fiscal stimulus, significantly tighter monetary policy and the stronger U.S. dollar are likely to result in slower economic growth, with in our opinion, the chance of recession in the next 12 months increasing to 30%-50%.

Sources of Stability

Although GDP growth is expected to slow, the unemployment rate should stay low through 2023 at around 3.6%. Monetary policy is still loose, with negative real rates of interest; there is still some fiscal stimulus; and both corporate and consumer balance sheets remain strong.

In The Spotlight

As the year began, many pinned their hopes on the economy shaking off the worst impacts from the COVID-19 pandemic—with expectations that reopening economies would ease supply chains and inflation. However, by midyear, it became clear that the ramifications aren’t abating as quickly as anticipated. In June, the consumer price index rose 9.1%, the fastest pace since 1981. Gasoline, housing prices and food were the largest contributors to this increase. The core index, which excludes food and energy, only fell slightly in June to 5.9% from 6.0% in May and well above where it was last June at 4.5%.

The Fed has responded to the sharp rise in inflation by hiking interest rates, though the June numbers may mean that the bank will speed up the pace of increases. Both stocks and bonds tend to perform poorly during high inflation regimes, like the one we are experiencing now. As such, financial plans should consider that there might be a negative impact on future economic growth, leading to lower equity returns.

consumer price index chart

Monetary Policy

The Fed has a difficult task in fighting inflation. The risk that the Fed is behind in tightening policy enough to slow inflation is growing, which could lead to the bank raising rates higher than the market expects. The Fed will also begin reducing its balance sheet by almost $100 billion a month in September, an unprecedented amount that could push rates higher than currently priced into the market—a negative for both stocks and bonds.

War in Ukraine

Economic sanctions on Russia have created further supply and inflation problems. Global supply chains rely on Russia for its oil and gas, wheat, and semiconductor exports. Russia is the main supplier of gas to several European countries, with Germany and Italy at greatest risk if Russia cuts off gas shipments to them. This would have a significantly negative impact on their economies, almost certainly producing a recession with global implications.

Supply Chains

The pandemic disrupted supply chains, leading to inflationary pressures. This has implications for markets because the globalization of supply chains had a deflationary impact on prices. Innovations like just-in-time inventory management—which provides the minimum amount of inventory to meet demand—led to improved productivity, profits and economic growth. Supply chains have yet to recover, which could lead to more onshoring, resulting in higher prices for consumers and lower corporate profits.

Labor Market

The tight labor market is contributing to inflation and could pressure corporate profits. The U.S.’s strong economic recovery since the pandemic downturn contributed to a tight labor market: almost two jobs are posted for every unemployed person, and the unemployment rate is down to 3.6%. Many workers also retired early during the pandemic, raising pressures on wages. The move to onshore jobs will add further tightness to the labor market, and higher wages could squeeze corporate profit margins.

Strength of U.S. Dollar

The stronger dollar has negative implications for global economic growth. As the Fed has raised interest rates faster than other central banks, the dollar has strengthened against other currencies. A stronger dollar makes U.S. exports more expensive for foreign buyers. Corporate profits may also take a hit because the stronger dollar weakens the earnings of U.S. multinationals. That could lead to lower earnings forecasts and lower price-to-earnings (P/E) ratios.

Consumer Confidence

There has been a sharp drop in consumer confidence. The Conference Board’s expectations index—based on consumers’ short-term outlook for income, business and labor market conditions—fell to 66.4 in June, the lowest level since March 2013, from 73.7 in May, signaling increased risk of a recession. The University of Michigan consumer sentiment index also reached a record low of 50.0 in June. Lower consumer confidence could slow spending and economic growth.

Housing Costs

Housing costs, especially rents, keep rising. Housing represents about one-third of the CPI, and because of the way it is calculated, it works with a significant lag. Rents have been rising sharply and will likely continue to do so as housing supply is limited, and labor markets are strong. That will create upward pressure on rents and the CPI. Higher rents also could create a substantial burden on budgets and reduce consumer spending.

key economic indicators

Investment Planning Implications

Investors dislike uncertainty—when the risk of a negative outcome increases, they demand larger risk premiums, driving P/Es down. Although this means companies are expected to have lower earnings, lower stock valuations may provide opportunities for patient investors.

Empirical evidence demonstrates that buying stocks when investor sentiment is negative has led to much higher returns than when investor sentiment is positive. The logic is simple: negative sentiment leads to low prices, large risk premiums and high expected returns. Returns are likely to be poor only if predictions turn out to be worse than expected.

Unfortunately, since not even good forecasters can tell us what is going to happen, the best you can do is make sure your plan anticipates negative shocks appearing regularly and addresses risks you are most concerned about, reducing them to an acceptable level.

Investors should always build the risk of an unexpected “black swan” event into their plans.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article.

© 2022 Buckingham Wealth Partners. Buckingham Strategic Wealth, LLC, & Buckingham Strategic Partners, LLC (Collectively, Buckingham Wealth Partners). R-22-4113

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The “4 Rs” of Behavior Finance

In his book, “Thinking, Fast and Slow” , psychologist Daniel Kahneman examines the two brain systems that drive the way we think while also shining light on the common biases that impact decision making. As it turns out, our brains are hard-wired to make fast, intuitive and emotional decisions shaped by our own biases and generalizations. These mental glitches, Kahneman proposed, make us feel like we are using good judgement even though the results of these impulsive decisions often get us into trouble. Without pausing to engage the rational area of the brain when faced with a big decision, especially financial ones, you risk causing more harm than good.

High levels of uncertainty about the economy, rising inflation, global supply chain disruption, soaring gas prices and expectations of increased market volatility can stoke fear in the minds of investors planning their financial futures. This may even cause some to consider sidestepping the risk of loss by making an impulsive change to their investment strategy. Building off Kahneman’s work and behavioral economics, strategies have been developed to help investors make better decisions during periods of instability.

A methodical framework for decision making can assist in slowing down responses, hopefully reducing the likelihood that emotions and irrational thinking will get in the way. The Kaplan Behavioral Financial Advisor (BFA) course has broken this process down into “The 4 Rs”:

R #1: Recognize the Situation

When you become overwhelmed, pause and take a moment to verbalize what you are feeling. Describe the reasons for these emotions and identify the actions you are considering. Think about any previous experiences that may be shaping your perception, such as the 2008 market crash. Try to assess whether you are in a clear state of mind and if your decision could derail a well-designed financial plan.

R #2: Reflect on Your Values

Do your best to zoom out your perspective and verbalize the big picture as well as your desired long-term financial outcomes. Consider if any biases are shaping your worldview and if those biases are potentially clouding your decision-making ability.

R#3: Reframe Your Viewpoint

Describe how this potential decision relates to your values, goals and moral principles. Bring the focus back to the long-term view and concentrate on what truly impacts the likelihood of success for your financial plan. Identify any instances where a market pullback creates opportunity such as investing cash reserves to “buy low”.

Think about how similar instances in market history played out:

  • Did markets recover?
  • Have you previously made a decision with your investments that didn’t pan out?
  • Is market volatility expected when invested for the long-term?
  • What would be the impact on your values and goals if you made this decision?

R#4: Respond Purposefully

Make an educated decision based on the overall picture, not the immediacy of a market drop or a perception that you know something about the market others do not. Seek counsel from your trusted financial advisor on the best decision for your situation.

The “4 Rs” approach is designed to help you make decisions that are emotionally reflective rather than emotionally reflexive. Remember, think SLOWLY! If you have questions about your portfolio, speak with your advisor about your concerns.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information. ©2022, Buckingham Strategic Partners. R-22-4070

About the author: As a divisional manager, Sean Brooks enjoys working with advisors in every area of their practice, from helping solve investment problems to sharing ways to run more efficient practices and build stronger client relationships. Prior to joining Buckingham, Sean was with AssetMark in a business development role, and he also worked as a banker and financial representative with JPMorgan Chase in Arizona and Illinois. Sean also spent time working as an estate planning consultant helping families avoid probate. He attended Loyola University of Chicago and earned a business degree in economics.

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Summer, Sun and Scams: Protect your Vacation from Fraud

The summer months kick off many seasons of happiness – the end of the school season for kids, BBQ season, baseball season (this is a happier time for some fans more than others) and vacation season. Over the next few months, millions of Americans will hit the road or take to the skies in search of fun, adventure, relaxation and quality family time.

Unfortunately, summer is a very profitable time for scammers and fraudsters looking to flip your summer holiday. While you’re booking airline tickets for your family, they are booking your hard-earned money into their bank account. Your trip can go from a fun-filled journey to a disastrous Griswold vacation in a blink of an eye.

According to a report published by the Federal Trade Commission, an astounding $92 million dollars were lost to vacation and travel fraud since the start of the COVID-19 pandemic. A majority of this amount stolen from Americans came from refunds and cancellations scams. From January 1, 2020 to June 15, 2022, U.S. consumers filed 58,580 reports centering around vacation and travel fraud. This amount is second only to online shopping fraud of 68,322 complaints.

The good news is you’re already equipped with the tools you need to prevent having your vacation ruined by fraud. The following tips won’t create shorter lines for the amusement park, keep bears away from your camper or stop your kids from asking “Are we there yet?”, but they can stop a criminal from gaining access to your dollars and sensitive information.

Copycat Airline Web Sites

When researching the best flight prices online, you see a great deal of significant savings with a major commercial airline. After booking the flight online or through the phone number listed, you receive a confirmation email that is missing a crucial piece of information – your pre-paid airline tickets.

In some cases, when you do receive your tickets, you will also receive a message that they are not valid due to a price increase. In order for your tickets to be finalized, you are forced to pay the additional charge. This tactic is something no legitimate company would ever do.

In either scenario, when you reach out to the airline, you discover your ticket was never booked or the flight doesn’t even exist.

To protect yourself:

  • Be cautious of third-party websites. These can appear to be legitimate when they are not. Go to for reviews and see if the company has an actual physical address.
  • Double check the URL of the site before entering any information. Make sure the link is secure and starts with https:// with a lock icon on the purchase page.
  • Make all online purchases with a credit card as those charges can be disputed and you will be issued a refund.

Fake Apps

Every day, millions of people download legitimate apps from reputable companies. Scammers take advantage of the belief that a valid company is behind the software and create bogus apps that are focused on vacation and travel. They are designed to impersonate a genuine app, such for VRBO or Airbnb, and look almost undistinguishable from the real one.

Before downloading ANY app:

  • Be aware that while a fake app might have an identical logo to the real company, often the name or description will include a spelling error or typo, including the name of the app itself or developer.
  • Look at the number of downloads. For example, the real Airbnb app has been downloaded over a 100 million times. A fake app will have nothing close to that number – maybe just a few hundred.
  • Check out the reviews. Does it have more two-star than five-star ratings? If it is a fake app, there’s a great chance someone will leave a review warning others.
  • Review the permissions the app is requesting. Is it asking for authorization to things that seem unusual for a travel booking app, such as access to your calling history, microphone, camera, etc.

Other Tips

  • Before signing or paying for a trip, ask for a copy of the cancellation and refund policies. Any refusal or reluctance by the company to share these in advance means you should walk away.
  • Any travel or vacation package that asks you to pay with wire transfers, cryptocurrency or gift cards is a major red flag. If you use these forms of payment to secure your package, you will have no way to get your money back if there is an issue.
  • Just like other scams, if a vacation deal or rental property is not legit, the fraudster will try to rush you into making a decision. If you have time to think through what you’re signing up for, you’ll realize it is fake.
  • One of your best tools as always is your gut instincts. If you believe a travel or vacation offer seems to be good to be true or doesn’t make sense, it isn’t the real deal.

Scammers can quickly turn your dream vacation into your worst nightmare. By following these guidelines, you can protect your money – and your sanity. Remember, if it’s too good to be true, it probably is. If you want to learn more about preventing identity theft, protecting yourself from fraudulent activity and next steps if you are a victim, check out this recent Buckingham article.

With all of that in mind, enjoy this wonderful time of the year. Safe travels!

About the author: As the Managing Director of Strategic Initiatives at Buckingham Wealth Partners, Jared Hoffman is energized by the ever-changing challenges and opportunities he and his team face as they work to be a resource for departments throughout the organization. Jared helps advance the strategic plan by collaborating on internal and external technology rollouts, improving internal best practices through training and development opportunities and acting as a resource for projects and initiatives of all sizes to improve the overall client experience.

The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Partners®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.

By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party websites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them. IRN-22-3989

© 2022 Buckingham Strategic Partners®

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