Here’s why you should – and shouldn’t – worry.
the main points
- High inflation and rising interest rates have experts worried about the economic downturn.
- We can’t say for sure that a recession is about to happen, but it’s best to prepare for it nonetheless.
At this point, it seems increasingly likely that the US economy may be able to avoid a recession in 2022. After all, we are in the latter part of September, looking at relatively low unemployment levels and a labor market that is still strengthening.
But economists remain concerned that things may take a marked turn for the worse in 2023, and that is understandable. inflation It’s still high, and consumers really need a rest. Thus, the Federal Reserve has plans to continue implementing rate hikes in an effort to slow inflation and bring down the cost of living to more moderate levels.
By raising interest rates and making borrowing more expensive, the Fed hopes to steer the economy into a scenario in which consumer spending falls enough to allow supply to catch up with demand, but not so much that the economy begins to suffer. But this is a very delicate balance to achieve. And there is a strong possibility that higher interest rates will, in fact, cause a sharp enough drop in consumer spending to reach recession by 2023.
But while we will likely see a recession in 2023, this is not necessarily a cause for panic.
Not all recessions are created equal
When we think of recessions, we tend to imagine long periods of rampant unemployment and poor economic conditions in general. But not all recessions are long. It is possible to get into and out of a recession after a few months. And because the job market is so strong right now, this is a possible scenario for a 2023 recession.
This assumes, of course, that we have reached that point. Consumer spending is likely to decline slightly month after month in order to slowly lower inflation levels without pushing the economy into a downward spiral.
How do you prepare for a recession?
In the end, only time will tell if things get worse economically enough to hit recession in 2023. But either way, preparing for a downturn is a smart bet, because if it doesn’t, you’ll have bolstered your finances Regardless.
Perhaps the best thing you can do to prepare for a recession is increase your energy emergency fund. In fact, you may want to set aside up to 12 months of living expenses in your account saving account If you lost your job during a recession and it took you some time to find another one. However, if you’ve been in a dual-income family with two stable jobs so far, you might feel quite comfortable having an emergency fund for six or eight months.
Another good bet is to work on enhancing your job skills to prevent potential layoffs. The more value you bring to your company, the more difficult it will be to let you go if downsizing becomes necessary.
Finally, without a crystal ball, we can’t say for sure whether or not a recession will happen in 2023. But if you do your part to prepare for it, it’s something you don’t have to worry about.
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