What causes a recession?
Everyone is wondering whether the economy is going into a recession — or if we are already in one.
But what causes a recession?
A recession is caused when a chain of events, like a line of dominoes, picks up momentum and does not stop until the economy shrinks. Each event is connected to something that happened before and something that will happen in the future. If the price of a hamburger goes up, you might stop buying hamburgers. This would impact a restaurant, and that would impact a server. There are many interconnected chains like this throughout the economy.
The dominoes leading toward a new recession have started falling, but when will they stop?
Which way will the economy go?
Only time will tell if the Fed can get inflation under control and stabilize the economy. The central bank is on a path to significantly raise rates this year, and there are signs that those moves are already working. The housing market is cooling off but not crashing. And pockets of the labor market are slowing down even though mass layoffs haven’t started.
Inflation continues to reach new peaks, and the dominoes continue to fall. Policymakers hope this chain of events will eventually stabilize. They just don’t know when. Or how.
This series is an examination of some of the most prominent economic themes of the year, explaining to readers their origins and impact during this highly uncertain period. These topics affect the finances of all Americans, and understanding what is happening can make you better prepared for what happens next.
