Podcast Summary
Monetizing a spare room on Airbnb: Renting out a spare room on Airbnb can generate income and be an effective side hustle. Awareness of economic indicators like the inverted yield curve can help individuals be proactive in their financial planning.
Monetizing what you already have, such as renting out a spare room on Airbnb, can be an easy and effective side hustle. The speaker, Nicole Lappin, shares her personal experience of using Airbnb to earn income while she's away writing, addressing the concern of leaving an empty house. She emphasizes the ease of hosting on Airbnb and the potential value of one's home. Additionally, she highlights the importance of being aware of economic indicators, like the inverted yield curve, which can signal an impending recession. By understanding this concept, individuals can be more proactive in their financial planning.
An inverted yield curve can signal an upcoming economic downturn: An inverted yield curve occurs when long-term yields are lower than short-term yields, indicating investors' pessimism and potential economic downturn
Economists don't have a clear-cut warning sign to indicate when a recession starts. Instead, economic downturns can occur gradually and may even sneak up on us. However, there is a warning signal that economists look out for – an inverted yield curve. This means that the difference between long-term and short-term treasury yields is decreasing or even reversing, with long-term yields being lower than short-term yields. To understand this concept, let's first clarify what treasuries are. The U.S. government sells treasuries, which are different types of debt with varying maturity lengths. Treasuries can be bonds (20 or 30 years), notes (2, 3, 5, 7, or 10 years), or bills (less than a year). Investors lend the government money in exchange for interest. The longer the term of the investment, the more interest the investor receives. This makes sense because they're giving up access to their money for a longer period. An inverted yield curve occurs when long-term yields are lower than short-term yields. This situation is unusual because it's generally expected that long-term yields would be higher to compensate investors for the additional risk they take on by locking up their money for a longer period. When the yield curve inverts, it can signal that investors are less optimistic about the future and are seeking the safety of short-term investments, potentially indicating an upcoming economic downturn.
The inverted yield curve as a potential recession indicator: An inverted yield curve, where the 10-year yield is lower than the 3-month yield, could be a warning sign of an upcoming recession, but it doesn't guarantee one and must be sustained for at least a quarter.
The shape of the yield curve, specifically the relationship between the 10-year and 3-month Treasury yields, can serve as an indicator for potential economic downturns. When this yield curve inverts, meaning the shorter-term yield is higher than the longer-term yield, it could be a warning sign of an upcoming recession. This phenomenon was first observed by economist Kimball Harvey and has been consistent since 1968. However, it's important to note that this inversion must be sustained for at least a quarter to be considered meaningful as a recession signal. The current economic climate, with the yield curve inverted since October 2022, is causing uncertainty, but we're not yet in a recession. Some experts suggest that the inversion may be a warning sign rather than the start of a recession. It's a reminder that economic indicators can provide valuable insights, but they don't always tell the whole story.
Fed's Interest Rate Hikes May Trigger Recession, Economist Warns: Economist Campbell Harvey, who once doubted the yield curve inversion's recession-predicting power, now believes the Fed's planned interest rate hikes could lead to a recession. Individuals should prepare for potential economic downturns by saving and managing debt.
Economist Campbell Harvey had previously expressed skepticism about the significance of the yield curve inversion as a recession indicator due to the current strength of the labor market, less risky debt, and potential alteration of the indicator's impact from widespread awareness. However, Harvey has recently become less optimistic and now believes the Fed may have raised interest rates too high, increasing the likelihood of a recession. While we're not currently in a recession, it's important for individuals to prepare for potential economic downturns by ensuring they have an emergency savings account and managing their debt. The same preparations will protect them from both recessions and other unexpected events. The Fed plans to raise interest rates twice more this year, but Harvey believes this is two times too many. Ultimately, it's uncertain if or when a recession will occur, but being financially prepared is crucial.
Don't rely on uninsured digital wallets during economic uncertainty: Move your money to a safe and insured bank account during economic uncertainty to protect your savings
While it may be tempting to keep your savings in digital wallets like PayPal or Venmo during uncertain economic times, these accounts are not FDIC insured. Therefore, it's important to move your money to a safe and insured bank account instead. This advice comes from the Money Rehab podcast, hosted by Nicole Lappin, produced by Morgan Lavoie, and researched by Emily Holmes. The team encourages listeners to email their money questions to money rehab at money news network dot com for potential inclusion on the show or even a one-on-one intervention. Additionally, follow Money News Network on Instagram and TikTok for exclusive video content. Remember, investing in yourself by educating yourself about personal finance is the most important investment you can make. So, thank you for listening and taking this crucial step towards financial wellness.
