Ouch, that was not a fun way to start the 2^nd quarter.  Let’s look at the terms and words being thrown out there and try to define those and give you our thoughts.

1. INFLATION – That is the most common word heard on most news shows. The general definition of inflation is: Too many dollars chasing too few goods. Consumer prices are up 8.5% from a year ago, primarily in Energy and food.  While we feel the supply chains and various shut downs have caused most of this inflation, there are certain pools that are opening back up and we expect the supply chains to loosen going forward.  This should curb the inflationary pressures, but not immediately.  Politicians blame War (Ukraine) or COVID, but the real reason is our money creation/supply.
2. FED POLICY: The Federal Reserve which is responsible for promoting the health of the US Economy and is responsible for setting short term interest rates (Federal Funds Rate).  They also determine how much money the banks need to have in reserve, this is called the “Reserve Requirement”.  The fed also influences rates by buying/selling US Treasury bonds.  Buy buying bonds, the FED injects more money into the overall money supply, thus encouraging lending.   For example, during the Panic of 2008, the Fed reduced short-term interest rates to essentially Zero and left it for seven years.  During that time the M2 (measure of money supply) grew just 6%.  So even with zero percent interest rates, there was no problem with inflation.  In contrast, this time around, the fed cut rates to Zero for COVID relief and the money supply (M2) has soared 18.7% since February 2020.  The bottom line is that monetary policy is still very loose and likely to stay that way.  However, these are not bearish signs for now.  Expect the Fed to raise the Federal Funds Rate by “50 Basis Points” on May 4^th.
3. RECESSION – Again, let’s define the term. A Recession happens when the economy (US GDP) contracts (is negative) for two consecutive quarters.  Having just completed the first quarter (Jan 1-March 31^st) we saw an adjusted GDP growth of 1.5%.  While we see some headwinds (Russia-Ukraine, Lockdowns in China, and the Biden administration ramping up regulation, thus adding to business costs, we also see tailwinds (re-opening, loose monetary policy and low tax rates). Put it all together and we forecast a 2.5% GDP for the year (Q42021 to Q42022).  If we were pressed to answer if we will have a recession, we would still say yes, but probably not until 2023.

Big picture: policymakers should commit to making sure the public knows another COVID-related lockdown is not in the cards.  Last, but never least, policymakers should consider cutting tax rates to boost work and investment, which, as always, help boost the economy and make inflation easier to control. Yes, monetary policy is the key ingredient for reducing inflation, but getting other policy oars rowing the right direction can make the Fed’s job easier.

This is not a very exciting newsletter.  However, it is important for us to inform you as to our thoughts on all things.  A recession does not mean we all lose our money and the market is crashing like 2008, it means production and our economy is re-setting.  There are still opportunities to defend your investments and continue to grow Please feel free to contact us with any questions, thoughts and concerns.  We are in this together.

Jeff

Jeffrey A Rittner, CFP®

Certified Financial Planner™

Bridgepoint Financial, LLC

(970)416-0088 – Office

(970)232-5823 – Cell

jrittner@cfiemail.com

125 South Howes St. | Ste. 910 | Fort Collins, Colorado 80521 | Office: 970.416.0088 | Fax 970.416.0087 | www.bridgepointfinancialco.com

Jeffrey Rittner, CFP® is a Registered Representative / Advisory Associate offering securities and advisory services through Centaurus Financial, Inc. member FINRA/SIPC,

and an Investment Advisor Representative, Legacy Financial and Centaurus Financial, Inc. are not affiliated.