A potential recession isn't a new concern, as economists have been sounding the alarm for months that it could be looming.
But with record-low unemployment and promising jobs reports, many Americans are wondering if a recession is still a possibility in 2023. That uncertainty can be daunting, and if you're feeling nervous about the future, you're not alone.
So should you be worried about a recession right now? And what can you do to prepare, just in case? Here's what you need to know.
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1. A recession is becoming more likely, but the future is still uncertain
According to Treasury Secretary Janet Yellen, a recession in 2023 is unlikely. As she said in a recent appearance on ABC's Good Morning America, "You don't have a recession when you have 500,000 jobs and the lowest unemployment rate in 50 years."
However, that could change depending on how inflation fares over the coming months. A low unemployment rate may be a positive sign that we can avoid a recession, but if inflation remains stubbornly high, the Federal Reserve may take a more aggressive approach.
Interest rate hikes are often associated with recessions, and if the Fed believes the only way to slow inflation is to aggressively raise interest rates, it could spur an economic downturn. Whether that will happen, though, will depend on economic data over the next few months.
2. A long-term outlook is critical right now
Economic uncertainty can be challenging, but a long-term outlook can make it a little easier to stomach. Recessions often feel never-ending when they're happening, but historically, they tend to be short lived.
The Great Recession holds the record for the longest-lasting recession, stretching from December 2007 to June 2009, or around 1.5 years. While that seems like a long time, the subsequent bull market lasted over a decade.
The best thing you can do, then, is double-check that you have a solid emergency fund with at least enough savings to cover around six months' worth of expenses.
From there, keep in mind that over the long run, the stock market and economy have always survived even the worst downturns. If we do face a recession in 2023, it, too, will be temporary.
3. The right stocks can better protect your finances
If you're concerned about your investments surviving a recession, the right stocks will make it far more likely your portfolio will pull through.
The strongest stocks will be from companies with solid underlying business fundamentals, which can include healthy financials, a competent leadership team, and a clear competitive advantage, for example.
Stocks like these have a much better chance of pulling through a recession. While they may take a hit in the short term if stock prices fall further, they're more likely to rebound when the market recovers.
It's unclear whether a recession is looming, and we likely won't know until later this year whether it's going to become a reality. But in the meantime, taking precautions like building an emergency fund and investing in the right stocks can help you prepare.
