We've Avoided a Recession in 2023. What's in Store for 2024?

For much of 2022, consumers were told the same story -- gear up for a 2023 recession and prepare for the economy to get worse. But now that we've made it to the final month of the year without an economic downturn, it's pretty fair to say that we've officially avoided a 2023 recession.

But will things change in 2024? That's the big question.

Recently, JPMorgan CEO Jamie Dimon took it upon himself to issue a recession warning for the new year. And he's not the only one.

Other financial experts have cautioned that economic conditions could worsen in the new year. And much of that will depend on how inflation tracks.

Things could hold steady, but they could also get worse

While the U.S. economy is looking good right now, it's hard to say how things will shake out in the new year. And part of that will hinge on whether inflation continues to cool or not.

The Federal Reserve has been fighting inflation with a string of interest rate hikes. Since March of 2022, the central bank has raised the federal funds rate 11 times. That's driven the cost of borrowing up across the board so that now, consumers are paying more for everything from auto loans to personal loans to home equity loans. Consumers with credit card balances are also being hit hard, as many have seen the interest on their debt increase, too.

The Fed paused interest rate hikes during its last two meetings. But with another meeting still on the books for 2023, there's a chance that the Fed will opt to raise rates once more before 2024 comes to a close.

And even if that doesn't happen, the Fed could always opt to raise interest rates in the new year if inflation doesn't trend in the right direction.

In fact, just recently, Federal Reserve Chair Jerome Powell was quoted as saying, "It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease...We are prepared to tighten policy further if it becomes appropriate to do so."

In other words, the Fed isn't committed to being done with interest rate hikes. And they could come back into the fold in 2024. If that happens, and it causes a major pullback in consumer spending, then that alone could be enough to fuel a recession in the new year.

Prepare just in case

It's definitely too soon to sound alarms about a 2024 recession. But it's also a good idea to prepare for one in case economic conditions do worsen.

The best thing to do in that regard is build an emergency fund, or boost your existing one. Aim for three months' worth of living expenses in your savings account at a minimum, and if you're able to save beyond that, even better.

It's also a good idea to try to diversify your job skills and income. Recessions can lead to job losses across a range of industries. The more skills you bring to the table, the more employable you might be at a time when jobs aren't as available.

Along these lines, you may want to consider participating in the gig economy in early 2024. Doing so could help you in a couple of ways.

First, it could make it easier to build up that emergency fund. But also, if you establish yourself in a gig position and your main job is compromised in the course of a recession, you'll potentially have that side gig to fall back on.

So just as an example, let's say you work in marketing but take on a side gig caring for pets. If you end up getting laid off, you might be able to go from 10 hours of weekly pet care to 20 while looking for a new full-time position, thereby easing some of the strain on your finances.

Many people are no doubt relieved that we've pretty much made it through 2023 without a recession. But 2024 is still a bit up in the air. So while you don't need to spend time actively worrying about an economic decline in the new year, you should take steps to prepare for one as best as you can.