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This is why we should and shouldn’t worry.

Key Point

• Experts fear an economic decline due to sharp inflation and rising interest rates.
• We can’t say for certain that a recession is coming, but preparing for it is the best thing you can do.

At this point, it looks more likely that the US economy will manage to avoid a recession in 2022. After all, it’s now late September, unemployment is relatively low, and the labor market is still sluggish. Become stronger.

But economists are still worried that things could get significantly worse in 2023, and rightly so. Inflation is still skyrocketing and consumers really need relief. As such, the Federal Reserve plans to continue raising interest rates to keep inflation in check and bring the cost of living to a more modest level.

By raising interest rates and making borrowing higher, the Fed hopes to lead the economy to a scenario in which consumer spending declines enough for supply to catch up with demand, but the more the economy begins to deteriorate, the more No. But it’s a very delicate balance. Indeed, interest rate hikes will likely lead to a sharp drop in consumer spending, reaching recession territory in 2023.

But while a recession could hit in 2023, that’s not necessarily reason to panic.

Not all recessions are created equal

When we think of recessions, we tend to imagine rampant unemployment and generally prolonged periods of poor economic conditions. But not all recessions are long-lasting. It is possible to go into a recession and come out a few months later. With the labor market so strong right now, this is his likely recession scenario for 2023.

Of course, that assumes we got to that point. A gradual decline in consumer spending every month is likely to slow down inflation without sending the economy into a downward spiral.

How to prepare for a recession

Ultimately, time will tell if the economy will deteriorate enough to hit recession territory in 2023. But in any case, preparing for a recession is a smart bet.

Perhaps the best thing you can do to prepare for a recession is to increase your emergency fund. In fact, it’s a good idea to have 12 months’ worth of living expenses in a savings account in case you lose your job in the recession and find another. That said, if you’re in a dual-income household currently working two steady jobs, you might be perfectly happy to have a six- or eight-month emergency fund.

Another good way is to work on improving your job skills to potentially prevent layoffs. The more value you bring to the company, the harder it will be to let go if you need to cut staff.

After all, without a crystal ball, we can’t tell with certainty whether there will be a recession in 2023 or not.