Recession and Inflation…Let’s Focus!

by | Oct 12, 2022

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Recession and Inflation…Let’s Focus!

By Marshall Krupp, Certified EOS Implementer

In collaboration with Ashley Berecz, Client Relations Manager

 

In September, the Federal Reserve board for a third-straight quarter again raised interest rates and made history by approving a third consecutive 75-basis-point hike in an aggressive move to tackle the white-hot inflation that has been plaguing the US economy.

The supersized hike, which was unfathomable by markets just months ago, takes the central bank’s benchmark lending rate to a new target range of 3%-3.25%.  That’s the highest the fund rates have been since the global financial crisis in 2008.

Their decision marks the toughest policy move since the 1980’s to fight inflation.  It will also likely cause economic pain for millions of American businesses and households by pushing up the cost of borrowing for things like homes, cars, and credit cards.

What does this mean in the simplest terms?  Every 0.25 percentage-point increase in the Fed’s benchmark interest rate translates to an extra $25 a year in interest on $10,000 in debt.  So, the recent 0.75 percentage-point hike means an extra $75 of interest for every $10,000 in debt.

So far, the Fed’s four hikes in 2022 have increased rates by a combined 2.25 percentage points — which means consumers are now paying an extra $225 in interest on every $10,000 in debt.

One of the spending areas we are seeing the greatest impact from the decision is in home mortgage rates.  As an example, the average mortgage rate for a 30-year fixed loan was around 7.10% in September, more than double its 3.22% level at the start of the year.  This is causing a slowdown in the sale of financed real estate as the actual monthly debt service requirements of principal and interest increases significantly.  This is resulting in purchasers questioning their investment intentions.

According to the National Bureau of Economic Research (NBER), history has shown that of the 34 recessions since 1857, they have varied in length from two months (February to April 2020) to more than five years (October 1873 to March 1879).  Of the 34 recessions, 19 are noteworthy and give us an opportunity to learn from.  The average recession has lasted 17 months, while the six recessions since 1980 have lasted less than 10 months on average.  So, we may be in this recession place through the end of 2023.

 

 

However; we are still feeling the domino effects of the COVID pandemic.  The world lacks political stability.  Global warming is influencing decision-making.  Large amounts of money have and continue to be injected into the national and world economy in unprecedented ways to address various causes. Our national debt is $30.9 trillion and rising.  The daily payment of interest on the national debt is in the hundreds of millions of dollars. There continues to be supply chain challenges, and today’s employees are different than the employees of the past.  Generation values are changing, and healthcare costs are increasing. We can sit idle like a deer in the headlights waiting to see what comes next, or we can pivot and take action to ride the storm.

With all of this said, what should entrepreneurs, business leaders, and executives do to ride this out?  What can they do to minimize the consequences and take advantage of opportunities?

From an operational side of the business, there are specific actions that can be taken to effectively run our businesses.  The human resources firm “Insperity” states:

“Recessions are unavoidable, but if you plan ahead, your business can survive and grow stronger as a result.

 

  • Regularly assess the health of your business.
  • Readjust your products and services and the resources required as necessary.
  • Build a lean, efficient team and remind them that you appreciate them.
  • Listen to your employees’ needs, and they will give discretionary effort for you.
  • Never stop thinking about how you can accomplish numbers 1-4 better and more efficiently.

 

If you follow these strategies, your business will be better prepared to survive any economic climate.”

There are hundreds of ways to stay lean, conservative, and pro-active during a recession. Our mindset may be equally or even more important to successfully see the light at the end of the tunnel.

Our current economic times are creating fear and uncertainly.  There is a lack of confidence and a high level of resistance.  People are unclear as to the choices that they should or should not be making.  The “fear of the unknown” gap is getting bigger.  And most of all, there is a feeling of lack of control… we simply cannot control how this recession and how inflation unfolds around us.

The most important thing that we can do is change our mindset.  If we cannot change what others do or think, we can at least change what WE do and think.  That begins with a new way of thinking during these challenging times.

Your mindset is a set of beliefs that shape how you make sense of the world and yourself.  It influences how you think, feel, and behave in any given situation. If you show up with a growth mindset that is focused on seeing challenges and problems as opportunities, you can take any negative situation and turn it into a positive.

So, how do you change your mindset when everything around you is suggesting the opposite.  Tony Robbins says that these five steps will enable you to change your mindset:

 

  1. Challenge you Limiting Beliefs: Nearly everyone holds on to limiting beliefs that prevent them from realizing their dreams. Those who are able to challenge and overcome them go forward to achieve their goals.  Those who don’t continue to live in negative patterns and often don’t even realize it.

 

  1. Face Your Fears: Fear is a destructive emotion.  It is a block that holds us back.  Many times, it is not real but a story that we have created.  Overcoming fear is a major step toward how to change your mindset for success.   If we can step into and through the fear, we will find that on the other side of fear is bright light.

 

  1. Shift Your Perspective: Robbins says, “Nothing in life has any meaning except the meaning I give it.” Do we see challenges as obstacles – or as opportunities?  Rather than letting others define your perspective, we need to reach down to our own ability to be proactive and define our own perspectives from the place where we want to be.

 

  1. Change Your Self-Talk: Our minds are a remarkable place.  It is easy to let it go to a place of negativity.  If we plant positive language to the stories that we create, we can change our perspectives.  Create the story that you want to unfold, the one that is aligned with a positive mantra that you can live by, the one that energizes you to see the opportunity in everything.

 

  1. Get Support: When we try to do everything by ourselves, we fall into the trap of isolation.  The fact is that we do not know everything; we need to look to others who have what we do not. To change your mindset is to fill your gaps with the knowledge of others so that you can see beyond the blinders that you may be wearing based on the limited knowledge that you have.  So, step into gatherings of positive minded people who want to elevate to a place of possibility and growth, people who are living stories of opportunity without being victims of those things that they cannot change.

Can we change what the Fed’s are doing?  Can we influence the decisions of those that we have elected to address the challenges of our time?  Can we direct the worlds events which influences our lives?  The answer to these questions is clearly NO.

However, within our own limited world of our families and businesses we have the capability and capacity to influence those around us to attain a mindset that is constructive, positive, and opportunistic.  If we do not model this, our family members and our employees will not absorb it.  It is up to us as entrepreneurs, executives, and leaders to set the tone, convey the message, and strengthen the foundation that our people stand on.

Whether 6-months or 18-months, the roller coaster ride of the current recession will be there for us.  Our challenge is to ride the ride safely and capitalize on the opportunities as they unfold.  If we do this, like all recessions of the past, we will come out stronger and more ready to face the new challenges of the future.

If you have any questions or would like to continue this discussion further, please contact us at ashley.berecz@peerexecutiveboards.com or go to our website at www.peerexecutiveboards.com and contact us virtually.  We will be happy to get back to you!

 

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EOS®, the Entrepreneurial Operating System® takes entrepreneur businesses on a journey of mastery of the EOS tools which enables businesses to elevate their leadership teams to make better decisions, maintain a level of accountability, at attain greater success more simplistically.  The components of EOS® are Vision, People, Data, Issues, Process, and Traction, which when used effectively attains a healthier organization with greater success.  Marshall Krupp is a recognized Certified EOS® Implementer serving clients through the nation.  He is also a national speaker, a past award-winning Vistage Worldwide Chair, and a past career of providing crisis management strategic advisors service to businesses, governmental agencies and not-for-profit organizations.   Review more at www.peerexecutiveboards.com  and at www.eosworldwide.com/marshall-krupp. 

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