- The Federal Reserve wants to get inflation under control without triggering a recession, but many economists are not confident it can achieve this.
- Treasury Secretary Janet Yellen said recession is not inevitable.
- 68% of economists surveyed said they thought we'd see a recession at some point in 2023.
Two-thirds of economists think there'll be a recession next year.
The word "recession" has the power to strike fear into the hearts of each and every one of us, and with good reason. Recessions can cause job losses, financial struggles, business closures, and an overall decline in the standard of living. After getting through the economic, physical, and financial challenges of the COVID-19 pandemic, it is unsurprising that people dread the potential of more economic pain. So is a recession around the corner? Find out what various experts have to say.
Is a recession likely?
A recession is a prolonged period of economic decline, often defined as two quarters of negative economic growth. The issue is that various governments around the world -- including the U.S. -- introduced huge economic stimulus packages to keep things going during the worst of the pandemic. Now there's a need to put the brakes on.
With U.S. inflation at a 40-year high, the cost of living is spiraling. The Federal Reserve wants to find a way to curb inflation without triggering a recession. But it is walking a tightrope: On the one hand, it could cause a recession. But on the other hand, if it can't get inflation down, the economic situation could be even worse further down the road. The Fed recently raised rates by a whopping 0.75% and it looks like it may repeat this increase next month.
Deutsche Bank's Chief U.S. economist, Matthew Luzzetti told clients last week that he's altered his timeline following the Fed's 0.75% rate hike. He now thinks a recession will happen sooner and the impact will be harsher. "In response to these developments, we now expect an earlier and somewhat more severe recession," he said in a research note.
Luzzetti is not alone. According to a Financial Times survey, 68% of economists believe there will be a recession in 2023. Asked when the next recession was most likely to start, 38% said it would be the first or second quarter of 2023. A further 30% predicted it would happen in the third or fourth quarter. With 2% anticipating a recession before the end of this year, the remaining 30% think recession is unlikely to happen until 2024.
However, Treasury Secretary Janet Yellen told ABC's This Week on Sunday that she expects the economy to slow, but said recession is not a certainty. "Chair Powell has said that his goal is to bring inflation down while maintaining a strong labor market. That's going to take skill and luck, but, I believe it's possible. I don't think a recession is inevitable," she said.
Meanwhile, according to Bloomberg, economists at Nomura Holdings think a "mild recession" is likely to start toward the end of this year. As a note from Moody's Analytics put it, "The Fed could be faced with a Hobson’s choice: Push the economy into a mild recession, similar to our scenario, to tame inflation, or wait and cause a more significant recession, since a stagflation scenario is possible next year if the Fed isn’t aggressive enough."
It is possible that the Fed can engineer what's called a soft landing -- bringing the growth back under control without sending the economy into a tailspin. But many economists are doubtful it can be done. Ultimately, consumers would be wise to prepare for a recession.
How you can prepare for a recession
There's a very good chance that recession is coming. But don't panic. If it does come, it won't be tomorrow -- you still have time to prepare. There are a number of steps you can take. Here are three that will put you in good stead.
1. Shore up your emergency fund and other savings.
The more money you can put aside today, the better positioned you'll be to survive any financial crisis. Experts advise putting three to six months' worth of living expenses into your emergency savings. But you might want to try to put even more aside in the coming months, especially if you think your job might be in jeopardy.
2. Pay down high-interest debt
Paying down debt is always a good way to build a solid financial foundation. Interest payments on loans or credit card debt can eat into your monthly pay checks. Moreover, if interest rates rise, so could the cost of servicing your debts. Check out our tips on how to pay down debt.
READ MORE: Best Debt Payoff Apps
3. Consider a side gig
It isn't always easy to maintain a side gig alongside your regular job. But it could give you some extra cash today, as well as extra protection in the future. For example, if you lost your main job, you'd have your side gig to fall back on, at least temporarily. That said, don't cut corners on your regular work in order to make time for the side gig. It would be counterproductive if you lost your job because you'd been distracted by ways to earn money on the side.
Alert: highest cash back card we've seen now has 0% intro APR until 2025
If you're using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.
In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2023 The Ascent. All rights reserved.