The investment banking giant sounds a warning of a major recession. Should you prepare?

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Is the economy about to take a major turn for the worse?


the main points

  • Deutsche Bank is concerned that a major recession is imminent.
  • You can take steps to prepare for one, such as taking care of your emergency fund.

The US economy has come a long way since the start of the COVID-19 pandemic. Back in April 2020, the national unemployment rate reached a record high. Now, the unemployment rate can be compared to what it was before the pandemic began.

But things may not stay rosy for long. Recently, the investment giant Deutsche Bank issued a warning that a major economic downturn is imminent. This is something that prompts him to prepare.

What happens during a recession?

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

Oftentimes, unemployment rates rise during a recession as companies cut costs by laying off employees. Sometimes, rising unemployment is accompanied by a stock market crash or even a housing market crash – but that won’t always happen. It is possible to have a scenario where the unemployment rate is high, but the stock and property values ​​are constant.

Why is a near-term recession a concern?

Deutsche Bank cites plans by the Federal Reserve to raise interest rates quickly as a possible cause of the recession. Right now, inflation is on the rise, and raising rates is one solution to calm it. But if the Fed acts too aggressively, it could end up hurting the economy rather than helping it.

How do you prepare for a recession?

To be clear, just because an investment bank warns of a recession in the near term doesn’t mean we’re guaranteed a recession. But it’s always a good idea to prepare for any kind of extended economic downturn, and there are many steps you can take.

First and most importantly, consolidate the file emergency fund. If you don’t have enough money in your savings account to cover three to six months of basic living expenses, start cutting back on non-essential spending to boost your cash reserves. Since job losses are common during downturns, you will need a way to pay your bills if you are laid off through no fault of your own.

Next, do your best to reduce the high-interest debt. If you end up losing your job or seeing your working hours shrink as economic conditions deteriorate, you won’t want to hang those exorbitant payments on your head. Plus, the sooner you pay off expensive debt, the less money you’ll lose on interest.

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

Don’t panic

Indulging in the idea of ​​a recession isn’t really a good use of your time – especially since we can’t say for sure that’s the direction the economy is heading. Your best bet is to actively prepare for this eventuality so that you are covered no matter what role the economy takes.

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