The Fed Says to Expect a Mild Recession -- but It Could Last 2 Years

Many financial experts spent much of 2022 warning consumers to gear up for a 2023 recession. And a big reason boiled down to the interest rate hikes the Federal Reserve was implementing.

The Fed has been trying to cool inflation for over a year now, since higher living costs have been wreaking havoc on consumers' budgets and forcing many to rack up debt just to stay afloat. By raising interest rates, the Fed has made it more expensive for consumers to borrow. The logic is that if consumers start to cut their spending in light of that, it should set the stage for a cooling of inflation, since the supply of available goods will have more of a chance to catch up to demand.

Now, the good news is that the Fed itself is not anticipating a deep, intense recession in the near term. Rather, it thinks our next downturn will be mild.

The bad news is that the Fed also thinks it will take two years to recover from our next recession. And that's less encouraging.

A mild but prolonged period of decline

Economic recessions have the potential to drive unemployment way up. And that's the fear a lot of Americans are grappling with right now. 

The idea of losing a job can be terrifying even during periods of economic stability. But losing a job during a recession could mean struggling to find work for months on end. 

Hopefully, our next recession won't be as intense as some financial experts cautioned about last year. But the idea of a two-year recovery isn't exactly wonderful. That's why now's a good time to gear up for a recession, even though it might be a mild one.

How to prepare for a recession

If you're worried about a recession hitting and your job landing on the chopping block as a result, one of the best things you can do is boost your emergency fund. If you don't yet have enough cash in your savings account to cover three full months of essential bills, aim to ramp up. That way, you'll have a means of paying your bills for a bit of time if your job is yanked away.

Now is also a good time to chip away at high-interest debt. If you owe money on credit cards, try to get those balances paid off. If you lose your job, the last thing you'll want is debt payments hanging over your head. 

Incidentally, a side hustle could be your ticket to growing your cash reserves and paying off debt. And that way, you can set yourself up with a backup income source in case something happens with your main job.

Finally, do what you can to boost your job skills. Being great at what you do won't guarantee that you won't be a layoff victim if your employer is forced to make cuts. But if you're able to add more value at work, you might spare yourself that fate if layoffs come down the pike.

Nobody wants to hear that a two-year recession may be coming. The fact that it's expected to be mild helps soften the blow, but it's important to prepare for what could be a prolonged period of general economic unrest.