You may have seen recent headlines about worldwide stock markets, and it’s easy to feel concerned. However, let’s break down what’s happening in a way that’s easy to understand and not as alarming as it may seem.
Recently, a U.S. jobs report showed slower hiring than expected, with employers adding only 114,000 jobs instead of the anticipated number. Additionally, the unemployment rate increased slightly from 4.1% to 4.3%. This news has led to fears that the U.S. economy, the largest in the world, might be slowing down, and there are concerns that the Federal Reserve may have delayed too long in lowering interest rates.
Meanwhile, Japan experienced higher-than-expected inflation in June, and its economy shrank in the first quarter of the year.
While news like this can be unsettling and make people worry about a possible recession, it’s important to understand that this situation is part of a bigger plan and not necessarily a bad thing.
Since COVID-19, many developed countries have been dealing with inflation. To combat this, world banks have been raising interest rates to slow down their economies, which helps reduce inflation. This was always the plan!
In an ideal world, inflation would gradually decrease as economic growth slows down—a “soft landing.” While there has been some success in reducing inflation, it’s impossible to avoid some bumps along the way.
The good news is that as economic activity decreases, we can expect inflation to continue dropping. World banks are closely watching inflation and economic activity to decide when to lower interest rates again. These recent drops in economic activity might actually speed up their plans to cut rates, which will ultimately help both consumers and businesses.
So, there’s no need to panic. This downturn was expected as a result of the increased interest rates—that’s their purpose. Don’t rush to sell your investments; the fundamentals of the companies you invest in haven’t changed, nor have your long-term goals. Future decreases in interest rates will be very positive for the markets, and this short-term downturn will pass.
If you have questions about your portfolio or financial plan, feel free to contact our team directly by visiting www.HarmerWealth.com, emailing [email protected], or calling us at 1.800.723.2138.