Inflation is at a nearly 40-year high and is the chief concern facing Americans today. While people quibble over increased prices, finance experts fear that the economy will face even more (and possibly irreversible) downturns, requiring proactive solutions.

Record-high inflation creates a multi-layered crisis. It represents a growing distrust in the Fed’s abilities, possible policy errors, and the increasing divide between political parties. What can the Fed do? And more importantly, what will happen if the Fed’s actions to hedge inflation can’t provide relief soon enough? What happens if the Fed can’t rein in inflation?

5 Things to Expect if the Fed Can’t Hedge Inflation

The Federal Reserve is working on an inflation-fighting strategy. While its impact is uncertain, if it works, it won’t provide relief for months or even longer. That’s because these policies work with a lag, meaning it may take time for rates to circulate through the economy. 

While the Fed has no direct method for reducing the cost of a gallon of gas or the price of a loaf of bread, they do have a process to bring down the cost of living.

For one, they could raise benchmark borrowing rates by no less than 0.25% (possibly twice that amount). Wall Street anticipates the Fed will hike rates no less than five more times before 2022 closes. 

What happens if the Fed’s strategies can’t rein in inflation and the economy gets stuck in a long-term cycle of recession and elevated inflation? These five facts may surprise you.

1. Personal Debts Become Unmanageable

When money is tight, some people are more likely to take out additional credit cards to pay bills, acquire personal loans to satisfy increasing cost demands, and fall into delinquency. When this happens, debt grows, especially during inflation.

Credit borrowers pay variable interest rates that are tied to the state of the economy. That means cardholders may experience high payments due to rapidly increasing rates during an inflationary period. Variable-rate mortgage holders also suffer the same fate. 

2. Higher Costs of Living for Everyone  

People think it can’t get much worse, but sadly, it can. If the Fed is unable to stave off inflation, the costs of goods and services (which is already at an all-time high) will continue to climb with little to no end in sight.

3. Instability for Folks Facing Retirement  

High inflation rates often mean increased wages. However, that places those already retired (or about to do so) in financial hardship because they are living on fixed incomes. 

Furthermore, they have fixed reserves of retirement money. Unless they have aggressive investments, the income from these investments is extremely modest. For some, it is only pennies each period.

An inflated economy could further harm retirees and their pocketbooks. It can erode the value of their retirement accounts, especially if they are overly exposed to cash or fixed-income investments.

4. Lower-Income Families Suffer Most

One conundrum for the Fed is to ensure the solution is not worse than the problem. If the Fed’s inflation-fighting rate cuts send the economy reeling, the middle class, lower-middle class, and those who fall below the poverty line will suffer the most. 

The Fed exasperated this issue for months by writing off the current inflation as a passing phase. These delayed reactions impact those without the means to manage during a financial crisis. 

The higher cost of living hit these Americans the hardest. They lack savings accounts, liquid assets, or cashable investments. It is one of the primary causes of the homeless crisis and why it is out of control in cities across the country. 

5. The Housing Market Will Crumble

If you remember the housing crisis of 2008, you know how risky real estate investment can be, especially as you approach retirement. Buying a home has historically been a good investment, and financial experts often advise purchasing rental properties for investment purposes. 

However, today, as it was in 2008, the state of the economy is making investing in real estate even riskier. While the Fed is raising interest rates from its 2% goal, attempting to cool the economy until the housing market crashes and becomes a “buyer’s market” again, experts agree real estate is too risky.

According to billionaire investor John Paulson, experts predict the housing market will soon tumble, leaving real estate investments riskier than ever. However, Paulson asserts that gold is the only way to hedge inflation.

What You Can Do to Stave Off Inflation

The bottom line is that if the Fed can’t rein in inflation, it’s on you to secure your own financial future by investing in ways that have historically proven to be sound. For instance, gold, silver, and other precious metals have and will continue to gain value steadily. 

If you’d like to invest in gold or want to learn more, claim your free one-on-one consultation.

About the Author

60 Years Experience


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