Talk about terrible news.
- Economists have been warning of an impending recession for months.
- A major financial player believes that things may end up being worse than many people anticipate.
For months now, economic experts have been warning of an upcoming recession. The Federal Reserve has been quite aggressive with interest rate hikes this year in an effort to slow the pace of inflation. The Fed’s goal is to make borrowing expensive enough that consumer spending begins to decline, thereby helping to close the gap between supply and demand that caused the cost of goods to skyrocket.
But the Fed is taking a chance. If you raise interest rates too drastically, it could lead to a major setback in consumer spending. And that could, in turn, cause a recession, something that many people fear.
Now, the silver lining in all of this so far has been a strong job market. In fact, many financial experts have admitted that while they think a recession may be imminent, it won’t necessarily be drastic or prolonged.
But recently JPMorgan CEO Jamie Dimon said some scary things about the economy. And it’s a caveat worth noting.
What could be worse than a recession?
Although Dimon acknowledges that the US economy is strong right now, he is still convinced that conditions may deteriorate. He also said there is a 20% to 30% chance of facing “something worse” than a recession in the short term.
Now, in economic terms, when we think of what’s worse than a recession, we tend to imagine a full-blown depression, a really long period of economic decline. But to be clear, Dimon isn’t saying he’s convinced we’re headed in that direction. Rather, he believes it is a possibility that people should prepare for.
How to prepare for a recession
The reality is that even seasoned economists can’t necessarily predict with certainty whether a recession (or worse) will hit, when it will hit, and how severe it will be. Sometimes these situations just need to develop and run their course. But it’s never a bad idea to prepare for a recession, especially in light of all the warnings we’ve been hearing.
One of the best ways to prepare for a recession is to increase your emergency fund. In the wake of the pandemic, many experts are advising people to save more than the previously recommended three to six months of living costs. Some, like Suze Orman, think that eight to 12 months of bills is a more appropriate amount of money to have in a savings account. So the closer you get to that mark, the better.
At the same time, it pays to do what you can to reduce costly debt. With more interest rate hikes on the horizon, you don’t want to carry a credit card balance, because it could end up costing you more later this year or early next. And if economic conditions take a turn for the worse, he definitely doesn’t want large monthly payments hanging over his head.
Finally, do your best to improve your job skills. That won’t guarantee you won’t be fired if your company is forced to downsize, but it might reduce your chances. And it will improve your ability to get a new job if you are fired.
All told, this isn’t the first time this year that Dimon has issued a dire warning about the economy, and it probably won’t be the last. The best thing you can do is remain calm, but make sure you are prepared for things to get worse.
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