Nigeria: Protests at banks and ATMs break out amid ‘cash scarcity’ concerns

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Destroying ATMs, breaking into banks and setting up blockades in the street: angry protests erupted on February 15 in several cities across Nigeria as people struggle to get their hands on newly designed banknotes. Frustration is mounting as some citizens can’t even purchase basic necessities amid widespread shortages of the new currency, just a week ahead of the 2023 general elections. 

The Central Bank of Nigeria began circulating newly designed banknotes worth 1,000, 500 and 200 naira (2.03, 1.02 or 0.41 euros) on December 15, 2022. The move was intended to replace dirty, old cash currently in circulation, tackle inflation and counterfeiting, as well as promote a cashless society

The old banknotes were set to expire on February 10, before Nigeria’s President Muhammadu Buhari extended the deadline for citizens to continue using their old 200 naira banknotes until April 10. The 500 and 1,000 naira notes must be exchanged or deposited in banks. 

But a lack of new notes in the banks – as well as allegations that banks are hoarding the new notes – have left people desperate, with lines forming outside banks and at ATMs. 

A video shared on Twitter on February 2, 2023 shows a long line of people queuing up to collect naira banknotes at a United Bank of Africa branch.

Some merchants have already stopped accepting the old banknotes, rendering them essentially valueless. In a cash-based society where around 40% of the population do not have bank accounts, the currency redesign has caused growing anxiety among those who can’t access the new money. 

Protests at bank branches erupted in Ibadan and Benin City as well as several towns in Delta State, in southern Nigeria, on February 15.

A video shared on Twitter on February 15, 2023 shows damaged ATMs outside First Bank in Benin City, Nigeria.

A video shared on Twitter on February 15, 2023 shows protesters blocking a road in Ibadan, Nigeria.

‘The people in the streets feel massive frustration’

In Benin City, a crowd of protesters attempted to breach the local branch of the Central Bank of Nigeria (CBN). Local residents had gathered around the bank to wait for a chance to exchange their naira notes. 

Protesters in Benin, Nigeria attempt to break into the local office of the Central Bank of Nigeria on February 15, 2023.

However, according to local media, they began throwing stones at the building and were met with teargas and gunshots from security forces. 

Protesters, armed with sticks and weapons, also attacked other bank offices and destroyed ATMs around Benin City.

A video shared on Twitter on February 15 shows people gathered and tyres burning outside of a United Bank of Africa branch in Benin City, Nigeria.

Godsent Clement Ogumu is a tech entrepreneur who lives in Benin City.


Yesterday [February 15], I unknowingly bumped into one of the protests that was going on in the middle of town in Benin City. I was almost mobbed or lynched by some very, very angry, protesting youths. They are very frustrated by the whole situation of naira scarcity. The frustration is very high and the youths are willing to take it out on anybody who happens to be someone that they perceive to be better off or in a position of power. During the time I witnessed the protests, the crowd was not exactly very violent, but they were very agitated. And a lot of damage has been done already. 

A video shared on Twitter on February 15, 2023 shows protesters near a Union Bank and United Bank of Africa branch in Benin City, Nigeria. Protesters appear to be breaking windows at the Union Bank. One protester appears to be wounded.

It started escalating between protesters and police. That’s when I left the scene, because we all know what the Nigerian police is capable of. Not too long after I left, we started getting information that some of the protesters were shot dead.

At least three people were shot dead by security forces on February 15 as protesters attempted to break into the CBN building in Benin City. 

Protests also forced many bank branches in Benin City to temporarily close. Many ATMs were also out of service or destroyed. 

‘A family told me they haven’t eaten because no one is willing to take their old banknotes’

The people in the streets feel massive frustration. A family came to me and told me they haven’t eaten since the previous day – even though they have the money – because no one is willing to take the old banknotes from them. 

The instruction was to deposit all your old naira notes and then withdraw the new naira notes. The funny thing is that the banks are not even allowing the withdrawal of new naira notes. There is no way anybody is coming across the new naira notes, even in this very, very serious situation. I know none of my family or friends have actually come across the new naira in quantities that are actually useful. Once in a while, you come across one or two of the new naira, which is barely enough to do anything.

A lot of us use online banking and transfers, which is an alternative, but a lot of families don’t know how to use these channels so they basically rely on cash transactions. These people can’t make payments, buy food, buy water – they are stranded. It’s a very dire, serious situation for a lot of people living in my neighbourhood.

‘It feels as though we are no longer in control of our lives’

Oyinkitana, who declined to provide his full name for security reasons, lives in southwestern Nigeria and is the CEO of a startup. 

The scarcity of Naira currency has had a significant impact on the Nigerian population, particularly those who depend on cash for their daily transactions, such as small business owners. As for myself, I find it challenging to purchase fuel for my car since many fuel stations prefer cash over POS [Point of Sale vendors who use card machines to make transfers for people, but often charge commissions for the service] or bank transfers. Moreover, some small business owners […] see cash as the only source for certain items, and their sales have been directly affected due to the lack of cash circulation. 

The current state of affairs in Nigeria is truly unbearable, as feelings of uncertainty loom over everything. It seems as though we have lost our bearings, with even the simple task of determining whether to use new or old notes becoming a challenge due to inconsistent acceptance by vendors. It feels as though we are no longer in control of our lives, as businesses shut down and the purchasing power of individuals continues to plummet. It’s a confusing time and nobody seems to understand what’s really going on in the country anymore.

‘The federal government wants to mop up all the cash in circulation so that politicians wouldn’t be able to buy votes’

Both our Observers told us the timing of the new currency redesign, coming just before the general elections, is no coincidence. They believe that it is also a mechanism to prevent politicians from hoarding cash and using it to buy off votes.

Clement Ogumu explained:

We all feel like this agenda is targeted at politicians who have stacks of cash stashed away in warehouses, in their bedrooms, or in various locations to buy election votes. They want to bribe their way into office by buying votes. I believe that’s the reason the federal government wants to mop up all the cash in circulation so that politicians wouldn’t be able to buy votes from those that are impoverished and willing to sell their votes for some cash.

I think it’s a good thing that the government is doing something about vote buying, but the truth of the matter is that it is coming with a lot of huge consequences for the population. The people bearing those consequences are people with little education, little money. 

The general election in Nigeria will be held on February 25, with three main candidates vying for the presidency: Bola Ahmed Tinubu, from the ruling All Progressives Congress party; Atika Abubakar, of the main opposition People’s Democratic Party; and Peter Obi, a favourite of the youth vote who represents the Labour Party.

Insecurity – including a kidnapping crisis and a militant Islamist insurgency – and economic concerns, such as inflation and unemployment, are among the top electoral issues ahead of the vote.

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Here’s what the Federal Reserve’s 25 basis point interest rate hike means for your money

The Federal Reserve raised the target federal funds rate for the eighth time in a row on Wednesday, in its continued effort to tame persistent inflation.

At its latest meeting, the central bank approved a more modest 0.25 percentage point increase after recent signs that inflationary pressures have started to cool.

“The easing of inflation pressures is evident, but this doesn’t mean the Federal Reserve’s job is done,” said Greg McBride, chief financial analyst at “There is still a long way to go to get to 2% inflation.”

What the federal funds rate means to you

The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves do affect the borrowing and saving rates consumers see every day.

This rate hike will correspond with a rise in the prime rate and immediately send financing costs higher for many forms of consumer borrowing — putting more pressure on households already under financial strain.

“Inflation has shredded household budgets and, in many cases, households have had to lean against credit cards to bridge the gap,” McBride said.

On the flip side, “with rates still rising and inflation now declining, it is the best of both worlds for savers,” he added.

How higher interest rates can affect your money

1. Your credit card rate will rise

Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. As the federal funds rate rises, the prime rate does, as well, and your credit card rate follows suit within one or two billing cycles.

“Credit card interest rates are already as high as they’ve been in decades,” said Matt Schulz, chief credit analyst at LendingTree. “While the Fed is taking its foot off the gas a bit when it comes to raising rates, credit card APRs almost certainly will keep climbing for at least the next few months, so it is important that cardholders continue to focus on knocking down their debt.”

Credit card annual percentage rates are now near 20%, on average, up from 16.3% a year ago, according to Bankrate. At the same time, more cardholders carry debt from month to month while paying sky-high interest charges — “that’s a bad combination,” McBride said.

At more than 19%, if you made minimum payments toward the average credit card balance — which is $5,474, according to TransUnion — it would take you almost 17 years to pay off the debt and cost you more than $7,528 in interest, Bankrate calculated.

Altogether, this rate hike will cost credit card users at least an additional $1.6 billion in interest charges in 2023, according to a separate analysis by WalletHub.

“A 0% balance transfer credit card remains one of the best weapons Americans have in the battle against credit card debt,” Schulz advised.

Otherwise, consumers should consolidate and pay off high-interest credit cards with a lower-interest personal loan, he said. “The rates on new personal loan offers have climbed recently as well, but if you have good credit, you may be able to find options that feature lower rates that what you currently have on your credit card.”

2. Mortgage rates will stay higher

Rates on 15-year and 30-year mortgages are fixed and tied to Treasury yields and the economy. As economic growth has slowed, these rates have started to come down but are still at a 10-year high, according to Jacob Channel, senior economist at LendingTree.

The average interest rate for a 30-year fixed-rate mortgage is now around 6.4% — up almost 3 full percentage points from 3.55% a year ago.

“Relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” Channel said.

This rate hike has increased the cost of new mortgages by around 10 basis points, which translates to roughly $9,360 over the lifetime of a 30-year loan, assuming the average home loan of $401,300, WalletHub found. A basis point is equal to 0.01 of a percentage point.

“We’re still a ways away from the housing market being truly affordable, even if it has recently become a bit less expensive,” Channel said.

Other home loans are more closely tied to the Fed’s actions. Adjustable-rate mortgages, or ARMs, and home equity lines of credit, or HELOCs, are pegged to the prime rate. Most ARMs adjust once a year, but a HELOC adjusts right away. Already, the average rate for a HELOC is up to 7.65% from 4.11% a year ago.

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3. Auto loans will get more expensive

Even though auto loans are fixed, payments are getting bigger because the price for all cars is rising along with the interest rates on new loans, so if you are planning to buy a car, you’ll shell out more in the months ahead.

The average interest rate on a five-year new car loan is currently 6.18%, up from 3.96% last year.

The Fed’s latest move could push up the average interest rate even higher, although consumers with higher credit scores may be able to secure better loan terms or look to some used car models for better deals.

Paying an annual percentage rate of 6% instead of 4% would cost consumers $2,672 more in interest over the course of a $40,000, 72-month car loan, according to data from Edmunds.

“The ever-increasing costs of financing remain a challenge,” said Ivan Drury, Edmunds’ director of insights.

4. Some student loans will get pricier

Federal student loan rates are also fixed, so most borrowers won’t be affected immediately. But if you are about to borrow money for college, the interest rate on federal student loans taken out for the 2022-23 academic year already rose to 4.99%, up from 3.73% last year and any loans disbursed after July 1 will likely be even higher.

If you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates, which means that as the central bank raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

Currently, average private student loan fixed rates can range from just under 4% to almost 15%, according to Bankrate. As with auto loans, they also vary widely based on your credit score.

For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the Education Department expects to happen sometime this year.

What savers should know about higher interest rates

The good news is that interest rates on savings accounts are finally higher after the recent run of rate hikes.

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which have been near rock bottom during most of the Covid pandemic, are currently up to 0.33%, on average.

Also, thanks, in part, to lower overhead expenses, top-yielding online savings account rates are as high as 4.35%, much higher than the average rate from a traditional, brick-and-mortar bank.

Rates on one-year certificates of deposit at online banks are even higher, now around 4.75%, according to

As the Fed continues its rate-hiking cycle, these yields will continue to rise, as well. However, you have to shop around to take advantage of them, according to Yiming Ma, an assistant finance professor at Columbia University Business School.

“If you haven’t already, it’s really important to benefit from the high interest environment by getting a higher return,” she said.

Still, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

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Fed expected to slow rate hiking to a quarter point but will stay unrelenting in inflation battle

The Federal Reserve is expected to raise interest rates by just a quarter point but also likely signal it will stay vigilant in its fight against inflation even as it reduces the size of the hikes.

The Fed releases its latest rate decision Wednesday at 2 p.m. ET, and Fed Chair Jerome Powell briefs the media at 2:30 p.m. The expected quarter-point hike follows a half percentage point increase in December, and would be the smallest increase in the federal funds target rate range since the first hike of the cycle last March.

While the meeting is expected to be relatively uneventful, strategists say it could be a challenge for the Fed chief to temper the reaction in financial markets. The markets have been rising as investors expect the central bank might succeed in a soft landing for the economy while also snuffing out inflation sufficiently to move back to easing policy.

“How is he going to tell people to calm down, chill out and don’t get so excited by us getting close to the end of the interest rate increases?” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “He’s going to do that by still saying the Fed’s going to stay tight for a while. Just because he’s done doesn’t mean it’s a quick bridge to an ease.”

Federal Reserve Board Chairman Jerome Powell holds a news conference following the announcement that the Federal Reserve raised interest rates by half a percentage point, at the Federal Reserve Building in Washington, U.S., December 14, 2022. 

Evelyn Hockstein | Reuters

The Fed’s rate hike Wednesday would be the eighth since last March. It would put the fed funds target rate range at 4.50% to 4.75%. That is just a half percentage point away from the Fed’s estimated end point, or terminal rate range of 5% to 5.25%.

“I think he will push back on financial conditions. I think the markets are expecting that. I think people realize how much credit spreads have moved, how much the equity market has moved, how much tech stocks have moved. This month has been extraordinary,” said Rick Rieder, BlackRock’s chief investment officer for global fixed income.

A rally that could dampen the Fed’s efforts

Easy credit and a stock market that is rising too quickly could defeat the Fed’s efforts to chill the economy and crush inflation.

Stocks rallied Tuesday as the Fed began its two-day meeting, capping January’s gain of nearly 6.2% for the S&P 500. The tech sector was up 9.2% for the month. Rates have fallen since the end of the year, with the benchmark 10-year Treasury yield at roughly 3.5%, after it ended December at about 3.9%.

Rieder expects Powell to deliver his comments with a hawkish tone. “I think if he’s hawkish, I think the markets have built that in. I think if he’s not, the market could make another leg,” he said.

In the futures market, fed funds futures continued to price a terminal rate of less than 5%. The futures also show investors expect the Fed to actually reverse policy and cut rates by at least 25 basis points by the end of 2023. A basis point equals 0.01 of a percentage point.

“I think he’s going to be hawkish relative to market pricing,” said Jim Caron, head of macro strategies for global fixed income at Morgan Stanley Investment Management.

Caron said the Fed’s downsizing of its rate hikes will be seen dovish in itself. Prior to December’s 50 basis point hike, the central bank raised rates by 75 basis points four times in a row.

“He wants to defend the validity of the 5% to 5.25% terminal rate [forecast],” said Caron. “At the same time, he sees record housing prices are coming down. Wage inflation is coming down. The auto sector is not doing great. Retail’s not doing so great. The jobs market is doing OK. Wage inflation is coming down but it’s still above comfort levels.”

Listening carefully to the Fed’s messaging

Caron said Powell also wants to be careful not to sound too hawkish. “It’s very easy for there to be a mistake in the communication from the Fed or there could be a mistake in the way the market initially interprets things as well,” he said. “That tells me there’s going to be a lot of volatility.”

Investors will be attuned to any comments Powell makes about the economy and whether he expects it to dip into recession, as many economists forecast. The central bank has not projected a recession in its forecast, but it expects very sluggish flat growth, and it sees the unemployment rate rising sharply to 4.6% later this year, from its December level of 3.5%.

The Fed is not expected to make any major changes in its policy statement when it announces the rate hike. Its last statement said that “ongoing increases” in the target rate range will be appropriate in order to reach a policy position that can send inflation back to 2%.

The Fed is making headway against inflation. Personal consumption expenditure core inflation rose by 0.3% in December and was at 4.4% on an annual basis from 4.7% in November, the slowest increase since October 2021

Strategists say the Fed needs more data and will likely wait until at least March to signal how long it could continue to raise interest rates. If it stays at the same pace, there could be two more quarter-point hikes.

The Fed will not be releasing any new forecasts or economic projections Wednesday. Its next forecast is the quarterly release of economic projections at the March meeting, and that is one way markets will get more clues on the intended rate path.

“They don’t want financial conditions to ease all that much, and they don’t have a new set of forecasts to give, so I think what that means is you have fewer changes in the statement and that line about ‘ongoing increases’ is going to stay the same,” said Michael Gapen, Bank of America’s chief U.S. economist.

Gapen said it will be difficult for Powell to sound too hawkish. “Actions speak louder than words. If they decelerate [the size of rate hikes] for the second straight meeting in a row, it’s hard to back that up with overtly hawkish language,” he said.

Boockvar said Powell should emphasize how the Fed will keep rates at higher levels, despite the market view that it will soon cut rates. “Powell is more focused on inflation going down and staying down than trying to help the S&P 500,” said Boockvar. “His legacy is not going to be determined by where credit spreads are or where the S&P is going. It’s going to be determined by whether he slayed inflation and it stayed down.”

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Inflation is expected to have declined in December, but it may not be enough to stop the Fed

A woman shops in a supermarket as rising inflation affects consumer prices in Los Angeles, California, June 13, 2022.

Lucy Nicholson | Reuters

The pace of consumer inflation is expected to have fallen slightly in December from the prior month because of a sharp drop in gasoline and energy prices, but the annual rate is still likely to remain uncomfortably high.

According to Dow Jones, economists now expect a decline of 0.1% in the consumer price index on a monthly basis, but inflation is still expected to climb at a 6.5% rate from the prior year. That compares to a gain of 0.1% in November, and a 7.1% pace year over year. However, the CPI is well off the 9.1% peak rate in June.

Core CPI, excluding energy and food, is expected to be up 0.3% in December, gaining 5.7% on a year-over-year basis. Core CPI rose 0.2% in November and 6% on a yearly basis.

“We welcome it with open arms. It’s good news,” said KPMG chief economist Diane Swonk of the expected decline. “It’s great and it helped to fuel consumer spending in the fourth quarter. … But it’s still not enough.”

The consumer price index is expected Thursday at 8:30 a.m. ET. It is the final CPI report before the Federal Reserve’s Feb. 1 interest rate decision. For that reason, the inflation number has become a major event for financial markets, and now some traders are betting it will show inflation slowing even more than economists forecast. They also point to weaker-than-expected wage growth in December’s jobs report, as well as other data that reflects lower inflation expectations.

Stocks rallied on Wednesday ahead of the report. “The market is looking at it as glass half full. Inflation is rolling over, and the Fed is almost done raising interest rates,” said Peter Boockvar, chief investment officer at Bleakley Financial Group. “I think they remember the last two months when you had numbers that were well below expectations. They’re just assuming that’s going to be the case again.”

Expected impact on the Fed

In the futures market, traders continued to bet the central bank will raise rates by just a quarter point at its next meeting. Meanwhile, some economists continue to expect policymakers will increase the fed funds target rate by a half percentage point. Market expectations are just 20% for a 50 basis point hike. A basis point equals 0.01 of a percentage point.

“It’s amazing how much reaction and overreaction there is for one single data point,” said Simona Mocuta, chief economist at State Street Global Advisors. “Clearly the CPI is very important. In this particular case, it does have fairly direct policy implications, which are about the size of the next Fed rate hike.”

Mocuta said a cooler CPI should influence the Fed. “The market has not priced the full 50. I think the market is right in this case,” she said. “The Fed can still contradict the market, but what the market is pricing is the right decision.”

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Wilmington Trust chief economist Luke Tilley said a 12% decline in gasoline prices in December and other decreases in energy prices — for expenses like home heating — helped drive inflation lower.

“Shelter is the main focus because of the lag,” he said. Rental market data shows a slowing in rates, but the CPI has not yet reflected it. “Everyone is familiar with the lag that it takes for the data to show up in the CPI,” Tilley added. “We think there could be a sharper slowdown.” Shelter costs are 40% of core CPI.

Shelter is expected to be up 0.6% month over month. Tilley said with the decline in the real estate market, he is hearing from landlords that they are having a more difficult time raising rents. “We’re penciling in slower increases in January and February and March on that shorter lag,” he said.

A focus on inflation in services

Economists are watching closely to see how much inflation related to services rises in CPI, since goods inflation is expected to continue to come down now that supply chains are operating more normally.

“The headline monthly changes over the last two, three months overstate the improvement. We’re not going to get the same help from gasoline in the next report. I don’t want to see an acceleration in shelter. I want to see some of the discretionary areas show deceleration,” said State Street’s Mocuta. “I think right now the focus is very much on the services side.”

The market is laser focused on inflation since the Fed’s progress in fighting it could determine how far the central bank will go on its rate hiking path. The rate increases are slowing the economy, and how much more it chooses to do so could be the difference between a soft landing or a recession.

“The hope is that basically we are now in a position where you could envision a soft landing. That requires the Fed to not only stop raising rates but ease up sooner and that doesn’t seem to be where they’re at,” said Swonk. “The Fed is hedging a different bet than the markets are. … This is where nuance is really hard. You’re in this position where you’re improving. It’s like a patient is getting better, but they’re not out of the hospital yet.”

The fed funds rate range is currently at 4.25% to 4.5%, and the central bank has forecast a final high rate of 5.1% for this year.

“The Fed is also worried about a second round of supply shock, whether it’s China’s abrupt abandonment of its zero-Covid policy or something else from Russia. They don’t want to declare victory too soon,” said Swonk. “They’re making that very clear. They’ve said it over and over again and nobody listens.”

Economists expect another key metric — the personal consumption expenditure deflator — could show core inflation slowing even below the Fed’s forecast of 3.5% by Dec. 31. Some economists who expect a recession predict rate cuts before year-end, as the markets expect. But the Fed has no forecast for rate cuts until 2024.

Some strategists expect Fed officials to begin to sound more dovish and less at odds with the market view. Boston Fed President Susan Collins said in an interview with The New York Times on Wednesday that she was leaning toward a quarter-point hike at the next meeting.

“We think one of the changes in coming months is the Fed will soon realize it is cheaper to change the inflation narrative than reverse a recession leading to millions of lost jobs,” writes Fundstrat founder Tom Lee in a note Wednesday.

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Why everyone thinks a recession is coming in 2023

People who lost their jobs wait in line to file for unemployment following an outbreak of the coronavirus disease (COVID-19), at an Arkansas Workforce Center in Fort Smith, Arkansas, U.S. April 6, 2020.

Nick Oxford | File Photo | REUTERS

Recessions often take everyone by surprise. There’s a very good chance the next one will not.

Economists have been forecasting a recession for months now, and most see it starting early next year. Whether it’s deep or shallow, long or short, is up for debate, but the idea that the economy is going into a period of contraction is pretty much the consensus view among economists. 

“Historically, when you have high inflation, and the Fed is jacking up interest rates to quell inflation, that results in a downturn or recession,” said Mark Zandi, chief economist at Moody’s Analytics. “That invariably happens — the classic overheating scenario that leads to a recession. We’ve seen this story before. When inflation picks up and the Fed responds by pushing up interest rates, the economy ultimately caves under the weight of higher interest rates.”

Zandi is in the minority of economists who believe the Federal Reserve can avoid a recession by raising rates just long enough to avoid squashing growth. But he said expectations are high that the economy will swoon.

“Usually recessions sneak up on us. CEOs never talk about recessions,” said Zandi. “Now it seems CEOs are falling over themselves to say we’re falling into a recession. … Every person on TV says recession. Every economist says recession. I’ve never seen anything like it.”

Fed causing it this time

Ironically, the Fed is slowing the economy, after it came to the rescue in the last two economic downturns. The central bank helped stimulate lending by taking interest rates to zero, and boosted market liquidity by adding trillions of dollars in assets to its balance sheet. It is now unwinding that balance sheet, and has rapidly raised interest rates from zero in March — to a range of 4.25% to 4.5% this month.

But in those last two recessions, policymakers did not need to worry about high inflation biting into consumer or corporate spending power, and creeping across the economy through the supply chain and rising wages.

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The Fed now has a serious battle with inflation. It forecasts additional rate hikes, up to about 5.1% by early next year, and economists expect it may maintain those high rates to control inflation.

Those higher rates are already taking a toll on the housing market, with home sales down 35.4% from last year in November, the 10th month in a row of decline. The 30-year mortgage rate is close to 7%. And consumer inflation was still running at a hot 7.1% annual rate in November.

“You have to blow the dust off your economics textbook. This is going to be be a classic recession,” said Tom Simons, money market economist at Jefferies. “The transmission mechanism we’re going to see it work through first in the beginning of next year, we’ll start to see some significant margin compression in corporate profits. Once that starts to take hold, they’re going to take steps to cut their expenses. The first place we’re going to see it is in reducing headcount. We’ll see that by the middle of next year, and that’s when we’ll see economic growth slowdown significantly and inflation will come down as well.”

How bad will it be?

A recession is considered to be a prolonged economic downturn that broadly affects the economy and typically lasts two quarters or more. The National Bureau of Economic Research, the arbiter of recessions, considers how deep the slowdown is, how wide spread it is and how long it lasts.

However, if any factor is severe enough, the NBER could declare a recession. For instance, the pandemic downturn in 2020 was so sudden and sharp with wide-reaching impact that it was determined to be a recession even though it was very short.

“I’m hoping for a short, shallow one, but hope springs eternal,” said Diane Swonk, chief economist at KPMG. “The good news is we should be able to recover from it quickly. We do have good balance sheets, and you could get a response to lower rates once the Fed starts easing. Fed-induced recessions are not balance sheet recessions.”

The Federal Reserve’s latest economic projections show the economy growing at a pace of 0.5% in 2023, and it does not forecast a recession.

“We’ll have one because the Fed is trying to create one,” said Swonk. “When you say growth is going to stall out to zero and the unemployment rate is going to rise … it’s clear the Fed has got a recession in its forecast but they won’t say it.” The central bank forecasts unemployment could rise next year to 4.6% from its current 3.7%.

Fed reversal?

How long policymakers will be able to hold interest rates at high levels is unclear. Traders in the futures market expect the Fed to start cutting rates by the end of 2023. In its own forecast, the central bank shows rate cuts starting in 2024.

Swonk believes the Fed will have to backtrack on higher rates at some point because of the recession, but Simons expects a recession could run through the end of 2024 in a period of high rates.

 “The market clearly thinks the Fed is going to reverse course on rates as things turn down,” said Simons. “What isn’t appreciated is the Fed needs this in order to keep their long-term credibility on inflation.”

The last two recessions came after shocks. The recession in 2008 started in the financial system, and the pending recession will be nothing like that, Simons said.

“It became basically impossible to borrow money even though interest rates were low, the flow of credit slowed down a lot. Mortgage markets were broken. Financial markets suffered because of the contagion of derivatives,” said Simons. “It was financially generated. It wasn’t so much the Fed tightening policy by raising interest rates, but the market shut down because of a lack of liquidity and trust. I don’t think we have that now.”

That recession was longer than it seemed in retrospect, Swonk said. “It started in January 2008. … It was like a year and a half,” she said. “We had a year where you didn’t realize you were in it, but technically you were. …The pandemic recession was two months long, March, April 2020. That’s it.”

While the potential for recession has been on the horizon for awhile, the Fed has so far failed to really slow employment and cool the economy through the labor market. But layoff announcements are mounting, and some economists see the potential for declines in employment next year.

“At the start of the year, we were getting 600,000 [new jobs] a month, and now we are getting about maybe 250,000,” Zandi said. “I think we’ll see 100,000 and then next year it will basically go to zero. … That’s not enough to cause a recession but enough to cool the labor market.” He said there could be declines in employment next year.

“The irony here is that everybody is expecting a recession,” he said. That could change their behavior, the economy could cool and the Fed would not have to tighten so much as to choke the economy, he said.

“Debt-service burdens have never been lower, households have a boatload of cash, corporates have good balance sheets, profit margins rolled over, but they’re close to record highs,” Zandi said. “The banking system has never been as well capitalized or as liquid. Every state has a rainy day fund. The housing market is underbuilt. It is usually overbuilt going into a recession. …The foundations of the economy look strong.”

But Swonk said policymakers are not going to give up on the inflation fight until it believes it is winning. “Seeing this hawkish Fed, it’s harder to argue for a soft landing, and I think that’s because the better things are, the more hawkish they have to be. It means a more active Fed,” she said.

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Here’s what the Federal Reserve’s half-point rate hike means for you

The Federal Reserve raised its target federal funds rate by 0.5 percentage points at the end of its two-day meeting Wednesday in a continued effort to cool inflation.

Although this marks a more typical hike compared to the super-size 0.75 percentage point moves at each of the last four meetings, the central bank is far from finished, according to Greg McBride, chief financial analyst at

“The months ahead will see the Fed raising interest rates at a more customary pace,” McBride said.

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The latest move is only one part of a rate-hiking cycle, which aims to bring down inflation without tipping the economy into a recession, as some feared would have happened already.

“I thought we would be in the midst of a recession at this point, and we’re not,” said Laura Veldkamp, a professor of finance and economics at Columbia University Business School.

“Every single time since World War II the Federal Reserve has acted to reduce inflation, unemployment has shot up, and we are not seeing that this time, and that’s what stands out,” she said. “I couldn’t really imagine a better scenario.”

Still, the combination of higher rates and inflation has hit household budgets particularly hard.

What the federal funds rate means for you

The federal funds rate, which is set by the central bank, is the interest rate at which banks borrow and lend to one another overnight. Whether directly or indirectly, higher Fed rates influence borrowing costs for consumers and, to a lesser extent, the rates they earn on savings accounts.

For now, this leaves many Americans in a bind as inflation and higher prices cause more people to lean on credit just when interest rates rise at the fastest pace in decades.

With more economic uncertainty ahead, consumers should be taking specific steps to stabilize their finances — including paying down debt, especially costly credit card and other variable rate debt, and increasing savings, McBride advised.

Pay down high-rate debt

Since most credit cards have a variable interest rate, there’s a direct connection to the Fed’s benchmark, so short-term borrowing rates are already heading higher.

Credit card annual percentage rates are now over 19%, on average, up from 16.3% at the beginning of the year, according to Bankrate.

The cost of existing credit card debt has already increased by at least $22.9 billion due to the Fed’s rate hikes, and it will rise by an additional $3.2 billion with this latest increase, according to a recent analysis by WalletHub.

If you’re carrying a balance, “grab one of the zero-percent or low-rate balance transfer offers,” McBride advised. Cards offering 15, 18 and even 21 months with no interest on transferred balances are still widely available, he said.

“This gives you a tailwind to get the debt paid off and shields you from the effect of additional rate hikes still to come.”

Otherwise, try consolidating and paying off high-interest credit cards with a lower interest home equity loan or personal loan.

Consumers with an adjustable-rate mortgage or home equity lines of credit may also want to switch to a fixed rate. 

How to know if we are in a recession

Because longer-term 15-year and 30-year mortgage rates are fixed and tied to Treasury yields and the broader economy, those homeowners won’t be immediately impacted by a rate hike.

However, the average interest rate for a 30-year fixed-rate mortgage is around 6.33% this week — up more than 3 full percentage points from 3.11% a year ago.

“These relatively high rates, combined with persistently high home prices, mean that buying a home is still a challenge for many,” said Jacob Channel, senior economic analyst at LendingTree.

The increase in mortgage rates since the start of 2022 has the same impact on affordability as a 32% increase in home prices, according to McBride’s analysis. “If you had been approved for a $300,000 mortgage in the beginning of the year, that’s the equivalent of less than $204,500 today.”

Anyone planning to finance a new car will also shell out more in the months ahead. Even though auto loans are fixed, payments are similarly getting bigger because interest rates are rising.

The average monthly payment jumped above $700 in November compared to $657 earlier in the year, despite the average amount financed and average loan term lengths staying more or less the same, according to data from Edmunds.

“Just as the industry is starting to see inventory levels get to a better place so that shoppers can actually find the vehicles they’re looking for, interest rates have risen to the point where more consumers are facing monthly payments that they likely cannot afford,” said Ivan Drury, Edmunds’ director of insights. 

Federal student loan rates are also fixed, so most borrowers won’t be impacted immediately by a rate hike. However, if you have a private loan, those loans may be fixed or have a variable rate tied to the Libor, prime or T-bill rates — which means that as the Fed raises rates, borrowers will likely pay more in interest, although how much more will vary by the benchmark.

That makes this a particularly good time to identify the loans you have outstanding and see if refinancing makes sense.

Shop for higher savings rates

While the Fed has no direct influence on deposit rates, they tend to be correlated to changes in the target federal funds rate, and the savings account rates at some of the largest retail banks, which were near rock bottom during most of the Covid pandemic, are currently up to 0.24%, on average.

Thanks, in part, to lower overhead expenses, the average online savings account rate is closer to 4%, much higher than the average rate from a traditional, brick-and-mortar bank.

“The good news is savers are seeing the best returns in 14 years, if they are shopping around,” McBride said.

Top-yielding certificates of deposit, which pay between 4% and 5%, are even better than a high-yield savings account.

And yet, because the inflation rate is now higher than all of these rates, any money in savings loses purchasing power over time. 

What’s coming next for interest rates

Consumers should prepare for even higher interest rates in the coming months.

Even though the Fed has already raised rates seven times this year, more hikes are on the horizon as the central bank slowly reins in inflation.

Recent data show that these moves are starting to take affect, including a better-than-expected consumer prices report for November. However, inflation remains well above the Fed’s 2% target.

“They will still be raising interest rates now and into 2023,” McBride said. “The ultimate stopping point is unknown, as is how long rates will stay at that eventual destination.”

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Correction: A previous version of this story misstated the extent of previous rate hikes.

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How to manage cash and stay out of debt running a business in a recession

Melissa Bradley has helped guide thousands of business founders through challenges.

The founder of 1863 Ventures, and a serial entrepreneur and investor, says if a recession becomes economic reality and customers cut back more due to inflation, it won’t be anything new for minority entrepreneurs.

“They are concerned because of the impact it will have on customers,” Bradley told CNBC Senior Personal Finance Correspondent Sharon Epperson at the virtual Small Business Playbook event on Dec.14. “The reality is Black and brown businesses are used to being locked out of access to capital, and used to having to spend more for things, so they plan.”

With a 98% success rate during Covid among over 3,000 Black and brown entrepreneurs with whom her organization has partnered, Bradley says consistent planning and “always expecting the worst” is in a minority business owner’s DNA. “Nothing is a guarantee,” she said.

The difference now for all business owners is the need to be mindful of what customers can afford going forward. The latest retail sales report showed a much bigger drop than expected, adding to fears that the economy and consumer are rapidly slowing.

“The first thing is plan. Your financial statements tell you a lot,” Bradley said, adding that they tell you about a lot more than just the assets and liabilities. “Be laser-focused on what financials are telling you about customers,” she said.

It’s more important than ever, she says, to understand drivers of growth, and dig into the details from all the business data at your disposal, showing what customers like and don’t like, where they search and shop, and when and how often they come back.

“Keeping customers engaged and happy is the greatest gift you can give yourself this holiday season to make sure revenue keeps coming in,” Bradley said.

She has some advice for business owners on how to stay out of bad debt, make the right investments, and keep sales flowing even through a recession.

Get a handle on costs and prices

Cash is king, “or queen,” Bradley said, depending on the entrepreneur, and it’s the first thing to get a handle on in a tough economy — specifically by looking at costs and prices.

She provided the example of a spirits business that experienced a big increase in the cost of glass that resulted in the need to reevaluate pricing. All businesses need to be able to at least cover costs without dipping into the owner’s pocket to pay, and that’s become more challenging amid inflation.

Don’t dip into personal savings

Bradley stressed that a business owner should not dip into your person savings, or “borrow against your house,” to keep a business going.

“You need to make sure your business can stand on its own,” she said.

Entrepreneurs are sold on a bootstrapping mentality, “a fake it until you make it” mantra, but the reality is it’s a big mistake to bring your personal life down as your business life goes on a rollercoaster.

“Stay really focused on the numbers and know some months are going to be high and some low,” she said.

Rethink contractors and extra cash

If business owners stay on top of their financials and avoid the bad debt decisions, they may be fortunate enough to end up with extra cash. Where that money is invested can make a big difference — either good or bad.

Bradley cautioned that the “world of contractors and 1099s” has been a great thing for the small business community, but during times of uncertainty there is greater risk associated with variable costs that many contractors operate under. Variable costs are harder to predict as part of ongoing cash flow.

She advises moving more costs to the fixed cost bucket, “so you can become laser focused on it, so you don’t have a deficit at the end,” she said.

Scrutinize the use of consultants

New business formation in recent years has been at record levels and when many businesses are first starting out they rely more heavily on consultants. Bradley says now is the time to reevaluate a reliance on multiple consultants. “Every quarter, think about what key operations and processes are needed to keep the business going and how many people are touching them,” she said.

If there are too many people involved, whether internal or external, that’s a risk in and of itself and it is not the sign of an efficient business. All tasks should be centralized and aggregated in the right way, and that might mean having one person on the job rather than three consultants.

Bradley provided marketing as one example, with the tasks of script writing, social media and photography all handled by different people. The smart money move may be to hire one person for all three tasks, but she said owners are often too busy running a company to pay attention to how their money is being invested down to that level.

But being busy is no excuse.

“You can’t make it if you are not paying attention to the steps along the way, how are you spending money so it has a positive ROI over the future,” she said.

Invest a little at a time in yourself

As an investor in many businesses, Bradley sets a cap on what she will put into any entity. “You can’t fund a business forever,” she said. Setting an amount of investment and a duration of investment is part of being disciplined about the funding process.

It is critical to keep personal and business accounts separate, but just as important to know you will at some point need more money for your business and you should be paying yourself as you go — not necessarily a lot, but with consistency.

“Really stay on top of being able to pay yourself a little, and pay off those expenses,” Bradley said.

She said one of the biggest challenges business owners face is waiting too long to pay themselves. “Even if you only have $100, pay yourself $50. This is about building the muscles to sustain and grow the business over time,” she said. “Take $50 and put $25 to a bill and $25 to yourself. It is not about waiting for the big jackpot at the end of the rainbow. … It’s about making steady progress in paying down any personal debt and continuing to invest in the business,” she said.

Make changes in smaller increments

Staying focused on the numbers is likely to result in the need to make changes based on greater understanding of what is and isn’t working. Plenty of businesses have been started during recessions, Bradley said, so change is not a reason to panic.

A business owner shouldn’t be making changes all the time — that is its own form of panic — but changes should be considered in small increments. Each month, each quarter, business owners should be considering changes. And they should not be planning in terms of “next year,” Bradley said.

“What do you want to accomplish between now and the end of the year? In January? … Making changes is not a sign of failure, it’s a sign of keeping pace with customers and what you’re learning from the market,” she said.

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