Recession Fears Loom, But It Might Not Be the Right Time to Panic

There’s a reason recession fears loom—and it might not be the right time to panic. The economy is still growing, but signs that growth is slowing are mounting, ranging from rising unemployment to declining stock prices and weakening consumer confidence. A key worry is a real-time tracker of the economy maintained by the Federal Reserve’s Atlanta branch, which flipped to negative this week and now projects shrinking GDP in the first quarter. But most other economists expect the economy to grow in the first quarter, though at a much slower pace than last year’s fourth-quarter annual rate of 2.3 percent.

Recessions are often triggered by unexpected events that rattle economies’ stability and confidence, from wars and pandemics to asset bubbles or international financial meltdowns. And while many factors can jolt economies into contractions, the typical definition of a recession is two consecutive quarters of negative economic growth, with businesses and consumers scaling back on spending.

But it’s important to understand that recessions aren’t just caused by macroeconomic shocks—even monetary policy can wreak havoc. For example, if interest rates rise too quickly, they may stifle economic activity by making mortgages, credit cards and other debts more expensive to service.

It’s also important to remember that, on average, recessions are short-lived. Since the end of World War II, they’ve lasted just over 12 months, according to business publication Kiplinger.