Key points
- JPMorgan CEO Jamie Dimon has scaled back his recession warnings since 2022, but recently acknowledged a higher likelihood of a downturn in the wake of the banking sector meltdown.
- While consumers don’t necessarily need to lose sleep over the idea of a near-term recession, it’s a good idea to take some basic steps to prepare for one.
- Consider paying down high-interest debt, boosting your savings balance, and improving your job skills.
In late 2022, experts were concerned about the possibility of a near-term recession due to rising inflation and the Federal Reserve’s aggressive interest rate hikes. This led to fears of a significant decline in consumer spending, which could result in an economic downturn.
However, despite the ongoing inflation problem and the Fed’s two interest rate hikes this year, consumer spending has not experienced a significant drop. Additionally, the unemployment rate has remained relatively low, leading many experts to believe that the possibility of a recession is now lower than it was six to nine months ago.
As a result, several financial experts, including JPMorgan CEO Jamie Dimon, have scaled back their recession warnings. While Dimon previously issued dire predictions in 2022, his outlook has now shifted.
However, Dimon recently stated in a shareholder letter that the market’s likelihood of a recession has increased in light of the banking industry crisis. This news is concerning, but there is no need to panic about the prospect of a recession.
A downturn is not guaranteed
The current economic situation is peculiar, with high inflation and plans by the Federal Reserve to raise interest rates to discourage consumer spending. This move could potentially result in an increase in unemployment and trigger an economic downturn.
However, a downturn might not occur, as consumers have exhibited resilience to inflation by continuing to spend. If this spending trend persists, it could help us avoid a recession in 2023.
Additionally, while the banking industry isn’t entirely out of the woods, it is not the same situation as in 2008. Although several major players, including Silicon Valley Bank and Credit Suisse, have experienced recent failures, many other banks are in good standing. As a result, consumers need not worry about losing their savings, especially since they are protected by FDIC insurance.
Consumers are better equipped to withstand a downturn
Although there is still a chance of a recession in 2023, JPMorgan CEO Jamie Dimon believes that U.S. consumers are in a relatively good position to manage one.
Dimon stated that unemployment is at an all-time low, and wages, particularly at the lower end, are on the rise. Furthermore, the past decade has seen appreciation in both home and stock prices, which means that even if we do enter a recession, consumers will be better equipped to handle it than they were during the financial crisis.
This does not imply that consumers should not prepare for a recession. It is an excellent opportunity to establish or enhance an emergency fund, repay high-interest credit card debt, and enhance job skills to protect against layoffs. However, consumers need not panic even though the odds of a recession may be somewhat greater now than they were a month or two ago.
