As the economy slows, some investors are sounding the recession alarm. A popular gauge of market anxiety has spiked to its highest level since the COVID-19 pandemic, while Google searches for the term “recession” have surged to an all-time high. But despite the recent selloff, recession fears may be overblown.
A recession is a natural part of any economy and can be triggered by a number of factors, including energy price shocks, unexpected monetary policy tightening and other short-term shocks. The most common trigger, however, is a decline in economic activity as companies and consumers cut spending because they are worried about the future.
The current recession threat stems from a growing fear that President Trump’s trade policies could send the economy into contraction. As the US trades with other countries, foreign governments can raise their own tariffs on American goods, leading businesses to reduce production and employment. This can lead to a downturn, which is a contraction of the economy and usually results in a decline in jobs.
Despite this, most economists don’t see the economy going into recession this year. The Atlanta Fed’s tracker of leading economic indicators fell to a negative reading last month, but it’s still above zero and the economy was growing at a healthy clip late last year. Moreover, the administration’s dialing down of some of its draconian tariffs should lessen the risk of the U.S. economy slipping into a recession. If you are concerned about a potential downturn, it’s important to minimize debt and build your emergency savings. You can also start putting money toward a down payment or a retirement account, and you should consider buying some low-risk assets like options (bets that a stock will rise above or below a certain price by a specified date).
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