3 Things That Might Happen if a Recession Hits

None of them are particularly desirable.

Will a recession hit in 2023? There's reason to believe things could take a notable turn for the worse next year.

The Federal Reserve is desperate to slow the pace of inflation. To that end, it's been aggressively hiking up interest rates in an effort to encourage consumers to spend less, thereby bridging the gap between supply and demand that's caused inflation levels to soar.

But if consumer spending declines to a more drastic degree than the Fed is hoping for, it could be enough to fuel a recession. And with that could come these unwanted scenarios.

1. Unemployment could surge

Right now, the U.S. labor market is pretty strong. But if a recession hits, it could be marked with widespread unemployment, putting countless workers in a very unfavorable position.

That's why it's so important to have a solid emergency fund. A robust savings account could be your ticket to getting through a recession and keeping up with your bills in the event of a lost job.

At a minimum, you should have enough cash in your savings account to cover three full months of essential bills -- things like your mortgage, car payments, utilities, and food. For even better protection, aim for a six-month emergency fund or greater.

2. Stock values could tumble

The stock market is already in a slump right now, so a recession may or may not make things worse. But it's fairly common for investment values to fall during a recession, so if you have money invested in a brokerage account, that's something you'll want to prepare for.

That said, you may not need to do anything to prepare other than pledge to leave your portfolio alone until it manages to recover any value it loses. Ideally, the money you have invested in your brokerage account isn't money you expect to use in the nerm term (if that were the case, then investing it wouldn't be prudent). But you may need to remind yourself not to panic and to leave your investments alone if things get worse.

3. Home values could drop

Home values are still quite elevated on a national level, so they're due for a drop regardless of whether a recession hits. But if economic conditions decline dramatically, we could see housing prices take quite a tumble.

That's not necessarily a bad thing, though. For the past two years, many buyers have been squeezed out of the market due to sky-high home prices. If those prices come down, it might allow more people to take the leap into homeownership.

Besides, home prices are so high right now that there's room for some downward movement -- meaning, homeowners won't necessarily go from sitting on tons of equity to being underwater on their mortgages overnight.

We can't say with certainty that a recession is coming, and even if it does, it could spare the housing market and even the stock market, to some degree. But it's important to know what circumstances a recession could bring about so you can take steps to prepare -- either financially, mentally, or both.