Economy experts uncertain about potential relief from inflation or recession
ELKHART, Ind. (WNDU) -Business leaders in Elkhart are learning how inflation, interest rates, and action from the federal government could lead our economy down two very different paths.
They learned this after hearing from finance experts at Fifth-Third Bank during an economic update at Elcona Country Club.
There are a lot of indicators that during the next six months, our economy could be on the path to breaking inflation or breaking into pieces.
However, if you ask an expert which scenario is more likely, they’ll likely tell you they don’t know.
What Tom Jalics from Fifth-Third Bank is certain of is that we’re not yet in a recession. He says strong unemployment numbers indicate that.
However, high inflation, high interest rates, and a labor market with more jobs than workers could push us over the edge by December.
“People are dealing with high prices, high increases in prices year over year, and our view is that we’re not in a recession today, but we are kind of in a dangerous place where the economy is going to start slowing down pretty rapidly over the next several months. We think either inflation will break, or the economy will break. Today we just don’t know what’s going to happen,” Jalics said.
Jalics says that if high interest rates don’t drop inflation quickly enough, businesses will start to cut costs, namely jobs.
“Over the next six months, as we see a slowdown in the economy, if things turn the wrong way we’ll see joblessness increase and the unemployment rate increase. That will be a key determinant if we’re going to head into a recession or not,” he said.
Jalics says Elkhart County will see the impact of high interest rates, especially in manufacturing.
“When interest rates rise, borrowing and lending gets more expensive. Business owners will typically borrow and invest in their businesses less. When they do that, future earnings and cashflows decline. Our guess is over the next 6-12 months we’ll see earnings and profits start to slow a little bit because of these interest rates,” Jalics said.
While that scenario would set us up for a recession, Jalics says there’s just as much of a chance that we stop short of one.
We have a historically strong jobs market at 3.5% unemployment, meaning a lot of people are getting their wages and putting them back into the economy.
That’s what gives us some room to slow down the economy to try and curb inflation by raising interest rates.
Jalics says there are several factors that are improving which typically signal a curb in inflation.
He says the money supply is getting better, while housing, energy, and supply chain issues are showing signs of getting better.
However, it’s still a toss-up until we see whether inflation cools off by December.
“Honestly, it is a coin flip whether we see a real recession in the next twelve months. Again, either the economy is going to break and we’ll have a recession, or inflation will break and we’ll skirt a recession. We don’t have an answer today,” he said.
While we don’t know which way the scales will tip, his biggest piece of advice is to keep investing in American businesses and products for the long term. While the short term might be uncertain, the US economy has always shown growth over time.
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