The Balance is here to help you understand events that affect your financial life. If you’ve been wondering whether there will be another recession, and how bad it could be, we’re here to help you.
If we have a recession, how bad will it be?
No one knows for sure, but the prognosis seems to get worse with every new economic report. Forecasts range from no recession at all to a severe one.
Economists at Wells Fargo say a mild recession is likely—comparable to the one we had in the early 1990s and on the less severe end of the spectrum when you look at the 12 recessions since World War II. On the other hand, Nouriel Roubini, chief economist at Atlas Capital, says we’re in for “cascading financial turmoil,” according to an opinion piece last week for Project Syndicate.
Fears of a recession—defined by experts as a significant decline in economic activity that lasts for multiple months—have grown as the Federal Reserve tackles inflation by raising interest rates. In a deliberate attempt to slow down an overheating economy, the Fed has raised its benchmark rate, the fed funds rate, twice since March. If the interest rate hikes slow economic activity too much, they could lead to a recession, which would be bad news for workers. Recessions often mean layoffs and elevated unemployment.
Opinion about whether we’ll actually get a recession is divided. There’s a 40% chance of a recession occurring over the next few years, up from 20% before the war in Ukraine, PNC chief economist Gus Faucher estimated last week. But economists at Oxford Economics said they believe we’ll avoid one.
While Fed officials hope to restrain inflation while avoiding a recession entirely, Fed Chair Jerome Powell acknowledged last week that that’s becoming less likely, especially because the Russian invasion of Ukraine has contributed to increasing prices for oil, food, and other important resources.
“It's obviously something that's going to be quite challenging,” Powell said at a European Central Bank forum. “And I would also say that the events of the last few months have made it significantly more challenging.”
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