Is a Recession Coming in 2023?

A couple looking worried about money with a laptop and bills.

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Here’s why we should – and shouldn’t – worry.

Important points

  • Rising inflation and interest rate hikes are causing an economic downturn for experts.
  • We can’t say for sure that a recession is coming, but it’s still best to prepare for it.

Currently, it looks increasingly likely that the US economy could manage to avoid a recession in 2022. Finally, we are in the second half of September and are looking at relatively low unemployment figures and a sluggish job market going strong.

However, economists remain concerned that things could get significantly worse in 2023, and that’s understandable. Inflation is still rising and consumers really need relief. And so the Federal Reserve plans to continue raising interest rates to curb inflation and bring the cost of living down to more moderate levels.

By raising interest rates and making credit more expensive, the Fed hopes to lead the economy into a scenario where consumer spending falls enough for supply to catch up with demand, but not so much that the economy begins to suffer. But that’s a very delicate balance. And there’s a good chance that rate hikes will actually lead to a fall in consumer spending sharp enough to reach recessionary territory in 2023.

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But while it’s possible we’ll have a recession in 2023, that’s not necessarily a cause for panic.

Not all recessions are the same

When we think of recessions, we usually envision prolonged periods of rampant unemployment and generally poor economic conditions. But not all recessions are long. It’s possible to enter a recession and exit it a few months later. And because the job market is so solid right now, that’s a possible scenario for a 2023 recession.

Of course, that assumes we get to that point in the first place. It’s possible that consumer spending will ease off slightly month-on-month to slowly bring down inflation without sending the economy into a downward spiral.

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How to prepare for a recession

Ultimately, only time will tell if the economy deteriorates enough to reach recession in 2023. But either way, preparing for a downturn is a smart bet because if one doesn’t happen, you still have your finances shored up.

Perhaps the best thing you can do to prepare for a recession is to stock up on your emergency fund. You might even want to put up to 12 months of living expenses into your savings account in case you lose your job during a downturn and it takes a while to find another. However, if you live in a two-income household with two steady jobs as of now, you may be very comfortable with an emergency fund for six or eight months.

Another good option is to work on improving your job skills to potentially avoid being fired. The more value you bring to your business, the harder it is to fire you when downsizing becomes necessary.

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All in all, without a crystal ball, we can’t say with certainty whether or not there will be a recession in 2023. But if you’re doing your part to prepare for it, you shouldn’t have to worry about it.

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