Morgan Arford. Photo by Keith Brofsky.

From continuously rising gas prices to rising interest rates on credit cards, consumers globally are feeling the pinch of inflationary pressures with no clear release valve, creating a crisis not seen since the 1970s.

How did we get to this point, and how can we avoid panic to weather the storm even as the Federal Reserve (the Fed) raises interest rates? Spoiler alert: discomfort is likely, but we may even find some new financial opportunities among the chaos.

How did we get here?

Inflation, which is most simply defined as prices catching up to money supply, has become a force to be reckoned with globally. We find ourselves now in the most difficult financial environment of the last century, caught in the crosshairs of two distinct inflationary pressures: the diluted inflationary effect of government stimulus during the pandemic, and the scarcity created by supply chain disruption.

It may be most helpful to start with 2020, when the pandemic hit and the economy as we know it started to shift. As businesses closed and some workers were laid off, “supply chain disruption” became a common refrain sneaking into everyday conversation.

In response, the government issued PPP loans for businesses and stimulus checks for consumers, shooting an estimated $4.6 trillion stimulus into the consumer’s hands, igniting a spending boom intended to boost the economy. We refer to the ongoing consequences of these actions as the “diluted inflationary effect,” since the money pool was diluted by the new government spending influx. Now, we find ourselves still struggling with the consequences, exacerbated further by the geopolitical turmoil of Russia’s invasion of Ukraine, which has dramatically reduced access to global commodities and agriculture products like wheat, platinum, oil, and important minerals used in manufacturing.

With inflation skyrocketing, something has to change. To tame inflation, the Fed will attempt to vanquish it in much the same way that they did in the 1970s: interest rate hikes.

Essentially, the Fed is pouring a bucket of cold water on the roaring economy before inflation expectations become embedded. Although this means more momentary discomfort and challenges for Americans, the Fed must take action to avoid high levels of inflation lasting for decades instead of just years.

Now, this is where we remind folks to buckle their seatbelts: it may be a bumpy ride. Basically, it will get harder to buy or sell anything, because money won’t go as far as it once did.

Brian Lockett. Courtesy of Comprehensive Wealth Management.

What should we do next?

Now is not the time to panic, but to be disciplined. Sticking to a strategic investment plan, especially when it’s most uncomfortable, can help to weather the storm.

For Washingtonians unsure of a plan or discipline, it’s important to define it now, in order to have an anchor of support through the challenging times ahead. For young people: stay the course and keep saving and investing, knowing that there is plenty of time on the horizon. History tells us that the financial storm will pass. For those nearing retirement: talk to a financial planner about a sound strategy to help preserve portfolio values and buying power, which inflation can decay.

Even without a plan in place, here are a few quick tips to keep in mind for this inflationary period:

  • Maintain a six-month savings emergency fund, but don’t focus on accumulating excess savings. While it’s true the dollar may not go as far as inflation increases, it’s important to keep enough in reserves to help stay afloat in the event of future job or income loss.
  • Pay extra attention to credit card bills and pay the full statement amount on or before the due date to avoid high interest rates.
  • When possible, make payments on any adjustable-rate loans or debts sooner rather than later, as interest rates are only expected to continue rising throughout the year.

Although there are many challenges, chaos inevitably creates opportunity. As the sands of the continuously evolving financial picture continue to shift, small strategic windows will open up. Based on our analysis, we follow the approach that when the storm comes, that is the time to focus even more deeply on your discipline prepare to seize opportunities when the skies start to clear.

Brian Lockett serves as Comprehensive Wealth Management’s vice president, lead advisor, and a Certified Financial Planner professional.

Morgan Arford is Comprehensive Wealth Management’s chief investment officer and self-proclaimed data nerd, leading investment strategy to support clients on their path to live richly.