Getting A Handle On The Forces Shaping The U.S. Economy
The U.S. economy is massive and appears to be heading for choppy waters.
In Episode 64 of the GHOGH podcast show, host Jamarlin Martin and wealth advisor Tunde Ogunlana had an in-depth conversation on the machinations of the U.S. economy and what should happen to ensure the masses are able to weather the economic troubles approaching.
Tunde is the CEO of Axial Family Advisors, a wealth planning firm.
Let’s dive into some of the key terms they used and a recommendation for what to study to best understand what’s going on with the economy.
Jamarlin kicked off the conversation with a discussion of the direction the Federal Reserve has been going and the extent to which it was going to pursue quantitative tightening. From late 2018 to the end of July, the Federal Reserve had been reducing the amount of assets on its balance sheet. It did this because the U.S. seemed to be recovering fairly steadily from the last recession.
Listen to GHOGH with Jamarlin Martin | Episode 64: Tunde Ogunlana
Part 1: Jamarlin talks to Tunde Ogunlana, the CEO of Axial Family Advisors, a wealth planning firm. We discuss what an inverted yield curve usually means in the bond market.
Reducing the amount of debt on the fed’s balance sheet lowered the amount of money circulating through the U.S. economy. This had impacts on several parts of the economy, including the speed with which the economy grew, the ease with which individuals and businesses can access credit, and inflation. Here is a resource from the Federal Reserve Bank of St. Louis on what to expect from quantitative tightening.
After discussing quantitative tightening, Jamarlin and Tunde discussed the outcomes of the quantitative easing program the Federal Reserve entered into in 2008 to stave off the recession by lowering the cost of money to promote lending and investing. During this period, the Federal Reserve bought Treasury bonds and mortgage-backed securities to the tune of $4 trillion. Whether this stimulated increased lending and investment is another article. Here is a longer primer on quantitative easing.
Inverted yield curve
In discussing the U.S. economy potentially beginning to enter a recession, Jamarlin highlighted how we’re beginning to see an inverted yield curve. This curve has historically signaled entry into recession territory. An inverted yield curve emerges when there is greater demand for long-term securities than short-term securities. This tells investors that they have the potential to get a higher yield from shorter-term debt than longer-term debt.
Typically, when the economy is healthy, investors anticipate getting greater returns over the long term. If they’re not expecting greater returns, you may have a weakening economy. Here is an explanation of the inverted yield curve.
Watch the bond market
Tunde pointed out how the bond market is one of the most important things for people to pay attention to, highlighting how most major events in the global economy are linked to it. Here are some resources to help keep an eye on the bond market:
The U.S. economy is massive but with these tools, you’ll be able to understand how it works a little better and navigate accordingly. Let’s GHOGH!
Kwame Som-Pimpong leverages relentless research, a knack for connecting dots, human-centered design approach, and effective communications strategy to help organizations realize their strategic objectives. Over a 10-year career, Kwame has supercharged grassroots political organizing efforts, assessed the effectiveness of U.S. federal agencies, managed an international program, founded a digital media startup, and advised government agencies on delighting their end-users. He earned a BA in Political Science from Davidson College and Master of Public Administration from the University of Georgia.