CONNECTICUT, USA — Two respected economics experts from Connecticut universities said a recession is coming and it could be a couple of months before the economy straightens out.
America is enduring the worst inflation in 40 years, spurred on by the COVID-19 pandemic. Soon, it's expected the Federal Reserve will hike interest rates for the first time in four years.
Inflation at about 2-3% is manageable for the long term, experts said. But inflation is now approaching double digits. So the Federal Reserve will soon raise interest rates to discourage big spending.
"It will help," said Fred Carstensen, director of the Connecticut Center for Economic Analysis at the University of Connecticut (UConn). "It will defer purchases. It will bring demand down to some degree."
The Fed is expected to raise rates by 0.75% for the first time in 28 years, likely leading to a recession, experts believe.
"This starts with the financial markets," said Professor of Finance Osman Kilic of Quinnipiac University. "That's what you're seeing the last couple of months. Stocks have been coming down. Crypto, which is a very speculative asset, has been coming down."
"It's a pain in the rear end," said Robert Coplin of North Haven, before walking into the grocery store. "I think it's artificially induced. I think the gas prices are crazy and it's just you know just makes life more difficult."
"Next you're gonna start seeing companies laying off people," Kilic said. "It is already happening."
Increasing interest rates is just one tool to address inflation, the experts said.
But there's little doubt a recession is coming the professors warn.
"It's going to stay there for a while because the system, the equilibrium, the prices have to adjust accordingly," said Kilic.
Seemingly, every facet of our lives has been touched by this financial crisis, even home sales.
"If we get into a recession it would likely come in 2023," said Carstensen.
Monday, the interest rate for a 30-year fixed-rate mortgage rose to 6%.
"It's pretty clear to me we are (already) in a recession and inflation is certainly the enemy of real estate," said Byron Lazine, Team Leader of One + Company with William Raveis Real Estate.
Experts say a recession of between one and two years is inevitable.
"Summer is going to be a challenge and in the fall you'll start to see a crack in the housing markets," said Kilic.
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Lazine says home values are not expected to take a hit, but "sellers have got to deal with the reality that in this new environment and they are not going to see 30, 40 offers like they were seeing."
He noted that increased interest rates have already resulted in 15 real estate companies imposing layoffs this year.
And with the short-term financial forecast being mostly cloudy, some are just hanging on like James Greco, of Wallingford. He was asked how much he is spending on groceries now compared to last year.
"Easily double and we're retired," he said. "So at 74, it's kind of tough to try to make ends meet."
Carstensen and Kilic said two factors in how soon inflation and a recession clear out are if COVID-19 comes back with a vengeance and if our supply chain issues finally get ironed out.
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