The U.S. economy is back in the headlines, with more economists and financial experts warning of an impending downturn at some point in the next year. But what is a recession and what happens during a recession?
Answers can be complicated and vague.
“Recessions are notoriously difficult to predict in advance,” said Tara Sinclair, professor of economics 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, how long and how deep.
For nearly two years, the US economy has recorded dramatic gains, with millions of new jobs and wage increases adding to the string of good news. Families and businesses were overflowing with cash, which they used to buy homes, cars, electronics and other big-ticket items. That extra spending — combined with ongoing supply chain shortages and delays due to the pandemic — has helped drive up prices and contributed to the highest inflation in 40 years.
Today, policymakers are trying to tackle some of those skyrocketing prices with higher interest rates. They hope that by making it more expensive for families and businesses to borrow – for investments, homes and cars, for example – the demand for these things will decrease. The question is whether they will 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 affect Americans.