President Donald Trump made headlines in March by stating that he wouldn’t rule out the possibility of a recession. The Dow Jones Industrial initially reacted to his comment by dropping nearly 900 points (about 2%).
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Beyond Wall Street’s reaction, let’s examine what the prospect of a recession mean for everyday Americans — and more importantly, their wallets?
Job Market Uncertainty and Cost-Cutting Measures
One of the biggest concerns with a potential recession is its impact on the job market. Melissa Cid, a consumer savings expert at MySavings.com and a mother of four, warned that this could affect employment and force tighter budgeting.
“If a recession hits, many businesses will need to cut costs, which will lead to layoffs and a shrinking job market,” Cid said. “That means families may have to stretch their budgets even further as income becomes less stable.”
While employment rates remain strong for the most part, though more than 10,000 federal jobs have been cut, and another 21,000 or more probationary jobs rescinded or cut, economic downturns can bring significant job losses, making it crucial to have a financial safety net in place.
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Inflation and the Renewed Focus on Savings
Though inflation has eased slightly, prices for everyday essentials remain high. Cid stressed that budgeting for groceries and other necessities, which has already become a priority for many families, would become even more important if a recession hits. She said this is already manifesting in one specific way:
“There is new interest in an old savings hobby — couponing!” Cid said. “I’m starting to see a resurgence in response to the rising cost of groceries and services. Couponing is the easiest it’s ever been since you can do it right from your phone. Small savings can really add up by using coupons at the grocery store, comparative shopping and utilizing rebate apps like Ibotta and Fetch.”
She also recommended shopping at supermarkets known for their low prices, like Aldi, and taking advantage of restaurant loyalty programs to cut dining costs.
Recession vs. Inflation
A recession impacts Americans differently depending on income levels. Aaron Razon, a personal finance expert at Coupon Snake, noted that it’s middle- and lower-income households that tend to bear the brunt of economic downturns.
“If the U.S. enters a recession this year, two of the biggest financial impacts the average American should be worried about are the cost of living and limited economic opportunities,” Razon said.
Unlike inflation, where prices rise but income often remains the same, a recession can bring reduced income, job losses and limited access to credit, he pointed out, all of which make it even harder to afford everyday essentials like groceries, gas and housing.
For those already struggling, a recession raises the chances of increased debt, food insecurity and even housing instability.
How To Protect Your Finances Before a Recession Hits
Even though a recession isn’t guaranteed, financial experts recommend taking proactive steps to strengthen your financial position. Razon advised consumers to focus on financial flexibility by:
- Developing new skills to improve employability
- Diversifying income streams
- Maintaining a strong credit score to ensure access to affordable credit
- Managing debt effectively
- Optimizing investments
- Building an emergency fund with at least three to six months of living expenses
“The number one lesson consumers can take from past recessions is the importance of having a safety net in the form of an emergency fund,” Razon said.
How Interest Rates May Change During a Recession
Another key aspect to watch if a recession hits is how the Federal Reserve adjusts interest rates. A recession could lead to either lower or higher interest rates.
“Lower rates could mean reduced debt burdens and lower monthly payments,” Razon said. “On the other hand, higher rates could result in increased debt burdens and reduced affordability, particularly for those carrying credit card debt, mortgages and personal loans.”
For homeowners, a recession-induced rate drop could present an opportunity to refinance at lower rates. For savers, however, lower interest rates might mean reduced returns on high-yield savings accounts and CDs.
Investment Opportunities in a Recession
While recessions bring financial hardship, they can also present opportunities for those who are prepared. As Razon pointed out, lower stock prices during a downturn may create investment opportunities for those with financial stability.
“Unless consumers have maintained stability in their finances, have built an emergency fund and are informed on economic trends, they won’t be able to leverage these opportunities,” Razon said.
Preparing for Economic Uncertainty
While Trump’s statement about a possible recession has sparked concern, the best response is to take proactive steps to protect your finances. Whether it’s tightening your budget, increasing your savings or diversifying your income, preparing now can help you weather economic uncertainty should a downturn occur.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: Trump Doesn’t Rule Out a Recession This Year — What Could That Mean for Your Wallet?
