Inflation, while abating, still a force for consumers

Inflation continues to fall since peaking last June but remains well above the preferred level of the Federal Reserve.

According to statistics released last week, core inflation — the rate monitored by the Fed — was up 5.6% year-over-year. Core inflation excludes food and energy prices, which are more volatile, providing a more nuanced picture that makes trends easier to spot.

“The Fed has a dual mandate, price stability and full employment,” GuideStone Chief Investment Officer David Spika said. “They want to see core inflation at 2%, and we are obviously a long way away from that. The Fed has been raising the Fed Funds Rate to cool the economy and reduce inflation, which involves job losses and weaker consumer spending. We expect they will raise it again at their May meeting, which will put it in a range of 5 to 5.25%, and we’d expect it to stay at that level through at least the end of 2023.”

Higher interest rates have the effect of tightening the money supply, and reducing spending by raising the unemployment rate, thus bringing stability to prices.

Reduced spending can also lead to a recession.

“Recession is really our best-case scenario today,” Spika said. “We have to slow down the economy to cool inflation, and a recession is the most likely result. Recessions are generally defined as two or more successive quarters of negative real economic growth combined with weaker employment and spending.

Spika said that the likelihood of a recession in the next 12 months is high, but it is likely to be mild-to-moderate, nothing like 2008 and 2009, a period colloquially known as the “Great Financial Crisis .”

“A recession, triggered by the Fed’s interest rates, will help prune the excesses in the economy today, including housing and consumer goods prices that are too high and a labor market that is too tight. Then we can resume a healthy, sustainable growth pattern in 2024 or 2025,” Spika said. “While the failure of Silicon Valley Bank last month is an example of what can happen when the Fed raises rates, we do not believe it is a precursor to a contagion in the financial services industry.”

Spika said while a recession can be a scary time with job cuts and uncertainty, it can prevent a period of stagflation — with limited economic growth and high inflation. The United States has not experienced stagflation since the late 1970s.

Retirement plan investors who want to ensure their fund allocations are age-appropriate can use the MyDestination Funds®, which provide a diversified asset allocation that gradually becomes more conservative as participants approach and move through retirement. Simply choose the Fund closest to your expected retirement date, and GuideStone will manage the fund allocation.

For investors that want more guidance, GuideStone offers a range of financial planning services, tailored investment strategies and ongoing investment management. To learn more, visit GuideStone.org/Advisors.

Retirement plan members can contact Customer Service at 1-888-98-GUIDE (1-888-984-8433) between 7 a.m. and 6 p.m. CT Monday–Friday with questions.

“This is definitely a time to stay invested,” Spika said of retirement investors. “None of us, professionals included, can time or predict the market. Making moves during uncertain times can lead to buying high and selling low. Ensure your portfolio is consistent with your time horizon and risk tolerance, and ignore the minute-by-minute daily headlines.”

For free resources, including the Retirement Planner Calculator and the Retirement Income Estimate tool, visit GuideStone.org/InvestmentAdvice.

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Investing involves risk, including the potential loss of principal. The Funds may experience negative performance, and past performance does not guarantee future results. There can be no guarantee that any strategy (risk management or otherwise) will be successful.

Advisory services offered through GuideStone Advisors^®, an SEC Registered Investment Adviser. GuideStone Advisors is a controlled affiliate of GuideStone Financial Resources^®. For more information about the firm, products and services, please review the GuideStone Affiliate Form CRS.

The MyDestination Funds® (“Funds”) attempt to achieve their objectives by investing in the GuideStone Select Funds and other investments. The Funds are managed to a retirement date (“target date”) by adjusting the percentage of fixed income securities and equity securities to become more conservative each year until reaching the retirement year and then approximately 15 years thereafter. The target date in the name of the Funds is the approximate date when an investor plans to start withdrawing money. The expense ratio for the Funds includes the expenses of the underlying Select Funds. The principal risks of the Funds will change depending on the asset mix of the Select Funds in which they invest. You may directly invest in the Select Funds and other investments. The Funds’ value will go up and down in response to changes in the share prices of the investments that they own. The amount invested in the Funds is not guaranteed to increase, is not guaranteed against loss, nor is the amount of the original investment guaranteed at the target date. It is possible to lose money by investing in the Funds. 

Roy Hayhurst is the director of denominational and public relations at GuideStone.