An economic downturn combined with high inflation is a double-whammy for your finances. DNY59/Getty Images/Jeffrey Hazelwood/CNET
President Donald Trump's turbulent tariff agenda, combined with mass deportations and increased national debt, has created heightened volatility in financial markets. Though many economists say there's low risk of a job-loss recession, others say we're at a critical crossroads, as consumer sentiment sours and the labor market sputters.
Some analysts have even posited that the economy could be circling the drain toward stagflation, a rare and toxic scenario of slowing growth and high inflation. In the 1970s, stagflation -- a combination of inflation and stagnation -- was a major economic crisis characterized by double-digit inflation, steep interest rates and soaring unemployment.
In a June study by Apollo Global Management, chief economist Torsten Sløk warned of ongoing stagflationary risks. "Tariff hikes are typically stagflationary shocks -- they simultaneously increase the probability of an economic slowdown while putting upward pressure on prices," Sløk wrote. "The current tariff regime increases the chance of a US recession to 25% over the next 12 months."
Stagflation is considered to be an even worse economic prognosis than a typical downturn, as the government lacks effective policy prescriptions to control it. "There may not be an easy path to monetary or fiscal stabilization," said James Galbraith, economics professor at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin.
US households, already struggling to afford the high cost of living, are preparing for what's next. Whether we're headed for a recession or a period of stagflation, taking steps to proactively safeguard your finances becomes all the more critical.
Are we still at risk of a recession?
Rampant economic uncertainty often triggers recessionary conditions as companies and households start to reduce spending and investment. During a recession, unemployment goes up, and the prices of goods begin to decline. It's generally harder to obtain financing, as banks tighten their requirements to minimize their risk of lending to borrowers who may default on loans.
The economy regularly experiences periods of booms and busts, with downturns occurring roughly every five to seven years. "We are due for a reset and a slowdown in the economy," said Greg Sher, managing director at NFM Lending.
Certain macroeconomic hallmarks, like shrinking GDP and rising joblessness, are consistent across all recessions. But every US recession is also unique, with a different historical trigger. The Great Recession of 2007-09, which kicked off with the subprime mortgage crisis and the collapse of financial institutions, was the longest. The COVID-19 pandemic recession, resulting from lockdowns and the loss of 24 million jobs, was the shortest recession on record.
... continue reading