Chris Tomlinson: With an economic recession likely, here is what you can do to lose less wealth

Y’all need to put the credit cards away and get your savings in order because some economic drama is coming our way. The collapse of stock prices into a bear market, rising interest rates, and crazy energy prices mark the end of a decade-long economic pattern that’s made us a little too complacent about the economy. Since the early 2000s, it seemed like the only way to lose money was to leave it in a savings account. The big question going into a potential recession with high inflation is where your wealth will shrink the least. Inflation is the alligator closest to the boat, and at 8.6 percent year-over-year, it’s big enough to capsize the economy and take a bite out of our retirement savings. We can debate what is causing the inflation because, as Wall Street Journal columnist Greg Ip pointed out last week, economists have yet to explain it adequately, but here we are.

Federal Reserve Chairman Jerome Powell can’t wait for white papers; his job is to keep the monster from flipping the boat. The Fed’s primary tool is short-term interest rates, and he cranked them up last week. Powell expects the Fed’s interest rates to rise from 0.25 percent in January to 3.4 percent in December. The world’s most powerful central bank has not raised rates that quickly since the early 1980s, the last time inflation rates were this high. Similar Fed moves triggered a lengthy recession in 1982, and economists fear a repeat. “If the Fed continues on a path of aggressive rate hikes, there is a serious risk that it will thrust the economy into a recession, needlessly pushing millions of people out of jobs,” warned Dean Baker, senior economist at the left-leaning Center for Economic and Policy Research. Other economists think Powell can lower inflation without causing an economic contraction, but the Fed’s track record is poor. Wall Street investors and business leaders don’t have much faith. Stock prices are down more than 20 percent from their peak at the beginning of the year. Traders determine share price on a corporation’s future earnings, and analysts see lower profits ahead. The global economy is undergoing fundamental changes that will impact all of us. Economic and territorial conflicts between democratic nations and authoritarian leaders are spoiling the international trade that brought lower consumer prices to the world.