Billionaire Investor Ken Griffin Warns Recession Is Inevitable

A recession may be coming, but there are ways you can be ready.

Increasing numbers of prominent investors and economists are sounding the warning bell on a likely recession. Most recently, billionaire investor and founder of Citadel investment firm, Ken Griffin joined the throng. He said it would be very hard to get what is an overheating economy under control.

Griffin told CNBC that it isn't a question of whether bad times were coming, it's a question of when it would happen and how bad it would be. "Everybody likes to forecast recessions, and there will be one. It's just a question of when, and frankly, how hard," Griffin told a recent investor conference.

Griffin's warning on a recession and inflation

There are huge economic forces at play that ripple into our everyday lives. These include the Russia-Ukraine conflict, which pushed up gas prices to the continued impacts of the pandemic. The most obvious impact is inflation, which has been increasing the living costs of ordinary Americans for quite some time now.

Unfortunately, there's no magic fix for high inflation. The Federal Reserve is attempting to bring it under control by hiking interest rates, but this could in turn trigger a recession. However, Griffin thinks the Fed needs to continue to hike rates even if it leads to an economic slowdown. "We should continue on the path that we're on to ensure that we re-anchor inflation expectations," he said.

Griffin points out that there's a psychological aspect to inflation as it can become a kind of self-fulfilling prophecy. For example, if you expect the cost of living to increase by 5% or more next year, you'll push for a corresponding increase in your wages. Companies then have to increase their prices to cover the higher salaries, and you could reach a situation where those increases become the norm.

If we do hit another recession, especially a serious one, the seasoned investor raises another concern. "We're going to have millions of Americans unemployed, back to back, twice in a three-year-and-change period," he said. He warned that the loss of human capital could be "devastating" because it will shrink people's skills, career experience, and confidence in the American dream.

Griffin also points out that in economics, there are often no certainties. There's not a definitive future we can predict; instead, it's about looking at the distributions of lots of different possibilities. Nonetheless, it's worth heeding the recession warnings and looking at ways to prepare.

How to prepare for a recession

Preparing for recession is like preparing for any potential disaster. If you're getting ready for storms, you might put food and water aside in case you can't get out and you store the things that might get blown away. Getting ready for a recession means putting money aside in case you lose your job and tying up as many financial loose ends as possible.

1. Build up your emergency fund

An emergency fund gives you a cushion against unexpected financial knocks, such as a job loss or medical issue. Many financial experts recommend building up at least three to six month's worth of money in a separate savings account. With a potential recession looming, some suggest shooting for a year's worth of living expenses.

If you've got money in a retirement fund or invested with a brokerage, those emergency savings could protect your assets. Let's say a recession does hit, and the stock market falls. The ideal scenario is that you can wait out the dip and aren't forced to sell any assets at low prices.

2. Pay down high interest debt

If you owe high interest debt, the more you can pay off now, the better. Not only will rising interest rates make it more expensive to carry that debt, debt payments will eat into your bank balance. The job market is strong right now, but this could change if a recession hits. If the worst happens and you find yourself out of work, making even minimum credit card payments could be a struggle.

If you're already living paycheck to paycheck, the idea of paying down debt and building up emergency savings may feel impossible. That's understandable -- especially as it's been an extraordinary couple of years. But every dollar you can put aside now will help if there is a recession. It may be a year before an impending recession arrives, so even cutting $20 a month from your costs now could add up.

3. Look at ways to learn new skills and protect your career

The other interesting part of Griffin's economic warning is the potential impact a second round of job losses could have on people's careers. Right now, unemployment is low, making it a good time to think about how you'll manage if the job market changes. Dust off your resume and look at ways to reconnect with former colleagues. Look for online courses or other ways to refresh some of your skills, particularly those that might transfer into a new job.

You might consider taking on a side hustle, particularly if it helps you pay down debt or build your savings. This could also give you a back-up income if things go south. At the same time, be aware that there's a difficult balance at play to ensure any extra work doesn't damage your standing in your main job.

Managing uncertainty

There's a lot we don't know about what might happen next. The worst of the pandemic may be behind us, but that was an extraordinary situation and the economic impact is still playing out. The good news is that the job market is still strong, and we may still have time to prepare for further economic troubles. The more you can batten down your financial hatches today, the better able you'll be to weather whatever comes.