The investment banking giant is issuing a major recession warning. Should we prepare?

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The US economy has come a long way since the start of the COVID-19 pandemic. In April 2020, the national unemployment rate hit an all-time high. Today, the unemployment rate is comparable to what it was before the start of the pandemic.

But things may not stay rosy for long. Recently, investment banking giant Deutsche Bank sounded the warning that a major economic downturn could be imminent. And that’s something worth preparing for.

What happens during a recession?

A recession is generally defined as a period of significant economic decline. But it can manifest in different ways.

Often, unemployment rates rise during a recession as companies cut costs by laying off staff. Sometimes rising unemployment rates will be accompanied by a stock market crash or even a housing market decline, but that won’t always happen. It is possible to have a scenario where unemployment is high, but stock and property values ​​remain stable.

Why is a short-term recession a concern?

Deutsche Bank cites the Federal Reserve’s plans to rapidly raise interest rates as a potential recession trigger. Right now, inflation is booming, and raising rates is one way to temper it. But if the Fed acts too aggressively, it could end up hurting the economy rather than helping it.

How to prepare for a recession

To be clear, just because an investment bank warned against a short term recession does not mean that we are guaranteed to have one. But it’s always a good idea to be prepared for any type of prolonged economic downturn, and there are several steps you can take.

First and foremost, strengthen your emergency fund. If you don’t have enough money in your savings account to cover three to six months of essential expenses, start cutting unnecessary expenses to bolster your cash reserves. Because job loss is common during recessions, you’ll need a way to pay your bills if you were to be laid off through no fault of your own.

Next, do your best to reduce high-interest debt. If you end up losing your job or having your hours reduced as economic conditions deteriorate, you won’t want those expensive payments to weigh you down. Moreover, the sooner you pay off expensive debtthe less money you lose in interest.

Finally, do what you can to secure your job. Sometimes, when economic conditions deteriorate, job loss can occur even if you are the most dedicated employee your company has ever hired. But if you strive to develop some of your professional skills, your company may have a harder time letting you go, even if the economy crashes and its revenue drops dramatically.

don’t panic

Getting excited about a recession isn’t exactly a good use of your time, especially since we can’t say for sure where the economy is heading. A better bet is to actively prepare for this possibility so that you are covered no matter what turn the economy takes.

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