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November 21, 2022

With all the recent talk of a recession looming, learn what you can expect.

There are signs that the next recession will hit next year, according to economic forecasters. Moody’s Analytics’ chief economist Mark Zandi cautions that a recession may be on the horizon. Goldman Sachs CEO David Solomon also told Reuters there is a reasonable chance of a recession. While it’s not certain there will be a recession, and there are many factors that could reduce its impact if there is one, many people are feeling anxious about the country’s economic future. Learn what you could expect from the next recession.

The Next Recession

The next recession is expected to be a mild one, meaning that it won’t last very long, with fewer people losing their jobs compared to previous recessions. For U.S. households that saved large amounts of money during the pandemic, they should be able to weather the financial storm pretty well. Still, there will be Americans who will lose their jobs and must adjust financially. Fitch Ratings said that the economy will face a recession starting in the second quarter of 2023, but robust consumer finances will help cushion the impact.

The Fed and Recession

Economists foresee a mild recession in 2023, caused by the Federal Reserve’s anti-inflation interest rate hikes. The Fed is attempting to lower inflation by slowing down the economy with a series of interest rate hikes. According to a recent statement from the Federal Reserve, “The Committee decided to raise the target range for the federal funds rate to 3-3/4% to 4%. The Committee anticipates that ongoing increases in the target range will be appropriate to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time.”

The increases to the benchmark Fed funds rate have raised the cost of borrowing for many types of loans, especially for mortgages. The idea is that by increasing the cost of borrowing, you can reduce demand for goods and services, rebalance supply and demand, and end skyrocketing prices and record inflation. The risk is that you not only beat inflation, but you also slow down business growth to the point of a recession. A recession is defined as a period of economic decline where workers lose employment and standards of living typically decrease.

What Would a Mild Recession Look Like

While the next recession is predicted to be mild in terms of how many people could lose their jobs and how long it will last, it won’t feel mild to the people who lose their livelihoods because of it. Wells Fargo predicts the unemployment rate will rise to 5.4% by the end of 2024, compared to the 3.7% of today. In comparison, unemployment hit 10% in 2009 during The Great Recession. While not nearly as bad, it would still mean that around 3 million people will lose their job next year.

It remains to be seen which industries and workers would make up the majority of those job losses. However, some industries are already being impacted. Companies in the housing business like Compass, Redfin, and Zillow have laid off large numbers of workers. It’s also expected that employment will drop up to 30% in the mortgage lending industry. In addition to job losses, households can expect to see slower wage growth.

How to Prepare for the Next Recession

The hard truth about recessions is that we won’t know when one has officially begun until well after it’s already started or over. That’s because the National Bureau of Economic Research looks at previous months’ data to determine when recessions begin and end. However, there will be plenty of signs.

One of the best ways to protect yourself from financial hardship during a recession is to have an emergency fund that you can tap into in case you lose your job. Other tips include looking for additional revenue streams, investing for the long-term, diversifying your investments, and keeping debt low.

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The content of this website is for informational purposes only. Nothing on this website constitutes financial or professional advice. Consult a professional for advice suitable to your personal circumstances.

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