Recession is ‘likely,’ former SEC chief economist says. Here’s his advice for how to prepare

The U.S. economy made a stunning recovery after the coronaviruses outbreak.

The labor market has added millions of jobs and wages have gone up.

Most Americans are worried that the good times will be short lived because of soaring inflation and rising interest rates.

It's a good time for young investors to put money in the market because interest rates mean good news for annuity buyers.

Are we going to have a recession? Larry Harris is a professor at the University of Southern California Marshall School of Business and former chief economist of the SEC.

It's hard to stop inflation without a recession.

The Federal Reserve said it will continue to raise interest rates.

Consumers get a better return on their money in a bank account when rates are high because they have to pay more to get a loan.

Harris said that rising interest rates choke off spending by increasing the cost of financing.

There will be a day of reckoning, the question is how soon.

Growth begins to slow because less money is flowing through the economy.

Fears that the Fed's aggressive moves could tip the economy into a recession has already caused markets to slide for weeks in a row.

The war in Ukraine has contributed to rising fuel prices, a labor shortage and another wave of Covid infections.

He said there have been huge things happening in the economy and government spending.

The question is how soon, there will be a day of reckoning.

The last recession was in 2020 and it was the first for some younger people.

Prior to Covid, there had been 13 recessions since the Great Depression, each marked by a significant decline in economic activity lasting for several months.

Harris said to prepare for budgets to be squeezed. They eat out less often, they replace things less frequently, they don't travel as much, and they buy hamburger instead of steak.

The impact of a recession will be felt across the board, but every household will experience a different effect depending on their income, savings and financial standing.

There are a few ways to prepare that are universal.

• Streamline your spending. “If they expect they will be forced to cut back, the sooner they do it, the better off they’ll be,” Harris said. That may mean cutting a few expenses now that you just want and really don’t need, such as the subscription services that you signed up for during the pandemic. If you don’t use it, lose it.
• Avoid variable rates. Most credit cards have a variable annual percentage rate, which means there’s a direct connection to the Fed’s benchmark, so anyone who carries a balance will see their interest charges jump with each move by the Fed. Homeowners with adjustable rate mortgages or home equity lines of credit, which are pegged to the prime rate, will also be affected.
  
  That makes this a particularly good time identify the loans you have outstanding and see if refinancing makes sense. “If there’s an opportunity to refinance into a fixed rate, do it now before rates rise further,” Harris said.
• Stash extra cash in I bonds. These inflation-protected assets, backed by the federal government, are nearly risk-free and pay a 9.62% annual rate through October, the highest yield on record.
  
  Although there are purchase limits and you can’t tap the money for at least one year, you’ll score a much better return than a savings account or a one-year certificate of deposit, which pays less than 1.5%.

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