How to manage rising rates, inflation and market volatility

Inflation, rising interest rates and market volatility have many Americans on edge.

Consumer prices rose 8.5% in March from a year earlier, costing American households an extra $327 per month, according to a Moody’s estimate.

To combat rising inflation, the Federal Reserve has started raising interest rates. The central bank already raised rates by 0.25% in March and has indicated that it will likely implement a 0.5% hike in May. Meanwhile, 30-year fixed mortgage rates have already soared to more than 5%. That’s an increase of 3.37% from January 5, according to Mortgage News Daily.

Everything is putting pressure on the housing market, where prices are still high and inventory is low, and the stock market, which was hit last month and remains volatile.

More from Invest in You:
How to know if an adjustable rate mortgage is right for you
Do you want a credit score of 720? Here are four ways to improve yours.
3 Ways Retirees Can Cope With Higher Prices Amid Current Inflation

“It’s going to be a much tougher year when it comes to the economy and people’s finances,” said Mark Zandi, chief economist at Moody’s Analytics.

With that in mind, here’s how to handle the tough economic situation many Americans are facing right now.

Changes in the stock market may make you want to run for the hills.

However, you must focus on the long term. Any changes you make to that plan during times of volatility can set you back for years, said financial adviser Mitch Goldberg, president of ClientFirst Strategy in Melville, New York.

“The best thing you can do is take control of your inner self: how you react to stress, the lessons you learn throughout your investment journey, and battle harden so you can become a long-term investor,” he said.

“Remember, time to market is more important than timing the market.”

Any money you’ll need in the short term should be kept out of stocks, so you’re not forced to sell at a loss when you want to access it, Goldberg said.

Also, if you’re nearing retirement, you may want to be a little more cautious, Zandi said.

That’s because he has low expectations for the market in the next two years.

“Asset prices in the market have skyrocketed because of the very, very low inflation, low rate environment that we were in,” he said.

“We can’t expect to see the kind of performance that we got in the previous world that we were in.”

Zandi has been predicting that inflation may moderate after a spike around May. However, inflation expectations are migrating to the upside.

“There are many different ways to measure expectations,” Zandi said. “Everyone says that people are beginning to believe that this high inflation is here to stay for a long time.

“If that’s the case, it will come true more and more,” he added.

To manage higher prices, first review your budget.

“You can make changes or modify your budget if you have the ability,” said Misty Lynch, a certified financial planner with Sound View Financial Advisors, based in Walpole, Massachusetts.

“If you need to, cut back or change your habits a bit so your $175 grocery shopping goes down to $150, like buying less meat.”

Many Americans have already stopped dining out, according to a recent CNBC + Acorns Invest in You survey. If inflation persists, they plan to cut back on eating out, driving and vacations, according to the Momentive survey.

If you have big things coming up, like a trip or a wedding, you can save money by planning ahead.

“Last minute things are going to be very expensive, and there are shortages of a lot of different things,” Lynch said.

Interest rate increases from the Federal Reserve affect the interest you pay on things like credit cards and a home equity line of credit.

That means credit card rates that are already high will go higher. Currently, the average rate is over 16%, according to CreditCards.com.

So focus on using any extra money you can save to pay off your debt. Lynch suggests starting with the cards with the highest interest rates. Others like to pay those with the highest balances first.

If you decide to transfer your balance to a zero-interest rate card, make sure you don’t keep accumulating debt, or you’ll be back where you started, since the zero-interest rate is locked in only for a certain period of time.