ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Direct Indexing
    • Disruptive Technology
    • Energy Infrastructure
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Financial Literacy
    • Fixed Income
    • Gold/Silver/Critical Minerals
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Modern Alpha
    • Multifactor
    • Night Effect
    • Portfolio Strategies
    • Responsible Investing
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Retirement Income Channel
  2. Did the Recent Rate Hike Increase Recession Risk?
Retirement Income Channel
Share

Did the Recent Rate Hike Increase Recession Risk?

Karrie GordonAug 01, 2022
2022-08-01

Recession concern is on the rise after the most recent Federal Reserve interest rate hike of 75 basis points (0.75%) at the July Federal Open Market Committee meeting. With a month break until the next FOMC meeting in September, economic slowdown already flagging in several indicators, and a second quarter of GDP contraction, worry is mounting that the economy is headed towards or might already be experiencing a recession.

“Investors and economists have been grappling with the notion that the Federal Reserve may cause a recession or, worse, a protracted recession through a policy error (i.e., hiking rates too aggressively),” wrote Mark Hackett, chief of investment research for Nationwide’s Investment Management Group, in a recent blog post.

The issue around interest rate hikes lies primarily around their timing — both the Fed’s late response to raising rates as well as the rapidity of this rate hiking cycle. If done too aggressively, it could land the economy squarely in a recession. The Fed has acknowledged that recession is “certainly a possibility,” according to Federal Reserve Chair Jerome Powell, but the central bank remains laser focused on bringing inflation under control, even at the cost to the U.S. economy.

Did the Recent Rate Hike Increase Recession Risk?
Image source: Nationwide Blog

Hackett likens gauging the impacts of monetary policy to Nobel economics laureate Milton Freidman’s “fool in the shower” idea. It’s akin to getting in a shower that is too cold, adding hot water to make the water warmer, and then in the delay of waiting for the water to adjust, turning it even hotter, ultimately ending with a shower that is scalding hot.

“Friedman stated that monetary policy operates with long and variable lags, and any change in monetary policy should be done slowly to gauge the effect on the economy,” Hackett explained.

The aggressive monetary policy that the Fed has embarked on, with four consecutive months of interest rate hikes that have a current rate range of 2.25%–2.5%, has been in direct response to persistent high inflation. Meanwhile, GDP contracted for the second consecutive quarter, and other indicators are beginning to reflect economic slowdown as well.

“It’s important to note the Fed may be raising rates while the U.S. economy is already in a recession. This uncertainty or ‘recessionary fog’ may cause investors to wonder if an upcoming recession will be imminent, shallow, protracted, or something entirely different,” Hackett mused.

Nationwide offers a suite of actively managed, income-seeking ETFs within equities for financial advisors. These funds include the Nationwide Nasdaq-100 Risk-Managed Income ETF (NUSI), the Nationwide S&P 500 Risk-Managed Income ETF (NSPI), the Nationwide Dow Jones Risk-Managed Income ETF (NDJI), and the Nationwide Russell 2000 Risk-Managed Income ETF (NTKI).

For more news, information, and strategy, visit the Retirement Income Channel.


Content continues below advertisement

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X