A recession is no stranger to the financial news, and it’s likely you’ve heard your share of warnings from economists and those “in the know.” However, a recession is not necessarily something to panic over. In fact, it is a normal stage in the economy’s cycle and can actually be a good thing for your finances.
Recession fears have been heightened by energy price shocks, high inflation and restrictive monetary policy. A number of indicators have triggered concerns about a possible economic slowdown including the deteriorating economy tracker maintained by the Federal Reserve’s Atlanta branch and the rising price of diesel, a fuel heavily used by truckers and farmers. Additionally, a rise in Google searches for the term “recession” has been a leading indicator of a future economic downturn (Leduc and Sill, 2004; Kilian and Vigfusson, 2017).
But the Trump administration’s recent dialing down of some of its tariff policies should decrease the probability of a recession this year. And the Fed is expected to begin easing monetary policy next year.
Even so, a recession can still hit the economy hard. This can lead to a contraction in growth, declining employment and a fall in the stock market. This can also make it difficult for people to afford basic goods and services. So, it’s important to save all you can now in order to be prepared. It’s also a good idea to not buy anything too expensive, like cars or vacations, that might see a sharp drop in value during a downturn.