What Is a Recession?
Here's how long recessions typically last and how you can prepare.
Carole Hodorowicz: First, inflation goes through the roof. Now, the Federal Reserve keeps raising interest rates. What's next? A recession? Wait. Is a recession coming?
Katherine Lynch: The real question isn't if we're entering recession or not, but the economy is slowing down, and that still affects us.
Hodorowicz: So, if it's not that bad, then is there really anything to worry about?
Lynch: Yes. So, when the economy slows down, that means people stop spending as much money, and this often means companies will stop hiring as many people.
Hodorowicz: Is this related to the high inflation and rising interest rates?
Lynch: Yes. Because inflation is so high, the Federal Reserve has raised interest rates multiple times this year. This means that it's become more expensive to borrow money. So, companies will stop investing as much in hiring as many people. This also results in the economy slowing down.
Hodorowicz: Is this going to be a repeat of the Great Recession in 2008 when household debt and unemployment skyrocketed? I mean, how long do recessions even last?
Lynch: Recessions can be short. Historically, the average recession has lasted 11 months.
Hodorowicz: What can I do to prepare?
Lynch: Consider your job security in the event companies do dial back on hiring. And it's smart to watch your spending. So, try to find cheaper alternatives for things you commonly spend money on, like bringing a lunch instead of eating out.
Hodorowicz: Yeah, I'll definitely start doing that. It probably wouldn't hurt to start stashing some extra cash too, right?
Lynch: Definitely. Keep building up your emergency fund, and even though it's a turbulent time, don't be deterred from investing.
Hodorowicz: Cheers to that, I guess.
Watch Carole and Katherine explain rising interest rates in "Why Are Interest Rates Rising?"