The US economy is back in the headlines, with a growing number of economists and financial experts warning of an imminent downturn sometime next year. But what is a recession – and what happens during one?
The answers can be complicated and vague.
“Recessions are notoriously difficult to predict in advance,” said Tara Sinclair, an economics professor at George Washington University. “It’s pretty easy to say that a recession is coming at some point in the future. … It’s much harder to quantify exactly when, for how long and how deep.”
For nearly two years, the US economy has posted blockbuster gains, with millions of new jobs and wage increases adding to the good news. Families and businesses had plenty of cash with which to buy homes, cars, electronics, and other expensive items. That extra spending — combined with ongoing supply chain shortages and delays due to the pandemic — helped push up prices and contributed to the highest inflation in 40 years.
Now policymakers are trying to counter some of those skyrocketing prices with higher interest rates. They hope that as it becomes more expensive for families and businesses to borrow — for things like investments, homes, and cars — demand for those things will fall. The question is will they be able to slow things down just enough without sending the country into recession.
Here we answer some common questions about economic downturns and how they’re affecting Americans.