WASHINGTON (AP) — For more than a year, the U.S. economy has defied predictions of a forthcoming recession. It has withstood 10 interest rate hikes in 16 months from an inflation-fighting Federal Reserve. In June, America’s employers added a healthy 209,000 jobs.

Will the economy remain resilient? Can the Fed achieve a notoriously difficult “soft landing” — slowing growth just enough to tame inflation without causing a recession?

The Associated Press spoke recently with Gus Faucher, chief economist at PNC Financial Services Group. The conversation has been edited for length and clarity.

Q: The job market is cooling but remains strong. Does that suggest a soft landing?

A: What we have seen in the job market so far in 2023 is consistent with a soft landing. Over the past three months, we’ve added 244,000 jobs per month. That’s still too high from the Fed’s perspective but much better than what we had at the end of last year. Although it’s consistent with a soft landing, it’s also consistent with a story where job growth continues to slow, the economy continues to weaken and we get a recession at the end of 2023. We don’t know what the outcome will be. It’s more likely than not that we get a recession.

Q: When would a downturn begin?

A: A few months ago, we were seeing it starting in the second half of 2023. Now we’re seeing late 2023 or early 2024. The labor market is still holding up. Consumers are still in decent shape. But I do think we will continue to feel the impact of the Fed’s monetary tightening. By the end of this year or sometime early next year, those higher rates will be a significant drag on economic activity and lead to recession. But the economy has held up somewhat better than we were expecting.

The economy just can’t continue to add this many jobs per month. We just don’t have the labor force out there.

Q: Where is inflation headed?

A: We will see slowing inflation. If you go back to 2021, 2022, a lot of that inflation was coming on the goods side. Now, the inflation is coming on the services side. Services inflation tends to be stickier, and it tends to be more driven by what’s going on in the labor market. So the tight labor market is contributing to high services inflation. That will contribute to inflation remaining higher than the Fed would like in the near term. By the end of this year, early next year, we will see a significant softening in the labor market that will help bring inflation down to the Fed’s 2% target.

Q: Will the job market continue to favor workers over the longer term?

A: We have seen structural changes. The pandemic pushed forward a lot of retirements. You had people who were close to retirement in 2020 and planning on working a few more years. But when the pandemic came along, they decided to retire. The remaining workers have more bargaining power. Businesses are going to need to rethink a lot of things about pay, about benefits, about workplace flexibility.

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WASHINGTON (AP) — White House economists on Wednesday warned of “severe damage” to the U.S. economy in the event of a debt default, warning that a prolonged default could cause 8.3 million job losses and the stock market to tumble 45%.

But the new report from the Council of Economic Advisers shows that even less severe scenarios would hamper the U.S. economy, evidence that the political showdown over the debt limit carries major financial costs. Without a deal in place between Congress and the White House, Treasury Secretary Janet Yellen warned that the federal government will lack the accounting tools to keep borrowing and potentially begin to default as soon as June 1.

The first and most dangerous scenario is a “protracted default.” The second is a “short default” in which Congress acts swiftly to allow the nation to borrow again after defaulting. The third is “brinkmanship,” in which lawmakers take the country’s full faith and credit to the wire, but avert default. All three would hurt the economy, the experts said.

President Joe Biden has a May 9 meeting with congressional leaders to try to find a way to resolve the approaching crisis.

House Republicans are insisting on spending cuts as part of any plan to allow the country to resume borrowing. Biden says he will not allow the country to be “taken hostage” by such demands and will only negotiate with the GOP on spending as part of the budgetary process. The president and Democratic lawmakers are seeking a “clean” increase to the nation’s $31.4 trillion debt limit.

A spokesman for House Speaker Kevin McCarthy, R-Calif., sent out an email Wednesday that blamed Democrats for the stalemate.

“There is no good reason other than political malpractice for the U.S. to default on its debt,” wrote McCarthy spokesman Chad Gilmartin. “Plenty of revenue is flowing in to pay interest on the debt.”

That statement treats default as solely pertaining to federal borrowing, but administration officials warn that missed payments to contractors, Social Security recipients, federal employees and others would also constitute a default.

The White House analysis warned that a protracted default could cost more than 8 million jobs in the third quarter of 2023, raising the prospect of “an immediate, sharp recession on the order of the Great Recession.”

The report said the government, unable to borrow money, would lack the traditional tools it uses to temper the impact of economic downturns, namely economic stimulus and social support.

“Because the government would be unable to enact counter-cyclical measures in a breach-induced recession, there would be limited policy options to help buffer the impact on households and businesses,” the White House said. “The ability of households and businesses, especially small businesses, to borrow through the private sector to offset this economic pain would also be compromised.”

A short default would also inflict damage with 500,000 fewer jobs. Even the “brinkmanship” approach, where lawmakers reach a deal at the eleventh hour, could cost about 200,000 jobs and shave 0.3% off the annual gross domestic product, according to the analysis.

There are already signs of market stress from the showdown as the cost of insurance for nonpayment of U.S. Treasury notes has risen. The U.S. economy is also in a fragile state as Federal Reserve efforts to lower inflation have stoked concerns of a downturn.

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WASHINGTON (AP) — The second consecutive quarter of economic growth that the government reported Thursday underscored that the nation isn’t in a recession despite high inflation and the Federal Reserve’s fastest pace of interest rate hikes in four decades.

Yet the U.S. economy is hardly in the clear. The solid growth in the October-December quarter will do little to alter the widespread view of economists that a recession is very likely sometime this year.

For now, the economy expanded at a 2.9% annual rate in the fourth quarter, though some of the underlying figures weren’t as healthy. Consumer spending, for example, grew at a slower pace than in the previous quarter, and business investment was weak. Last quarter’s growth was fueled by factors that won’t likely last. These include companies’ restocking of inventories and a drop in imports, which meant that more spending went to U.S.-made goods.

Increased borrowing rates and still-high inflation are expected to steadily weaken consumer and business spending. Businesses will likely pare expenses in response, which could lead to layoffs and higher unemployment. And a likely recession in the United Kingdom and slower growth in China will erode the revenue and profits of American corporations. Such trends are expected to cause a U.S. recession sometime in the coming months.

Still, there are reasons to expect that a recession, if it does come, will prove to be a comparatively mild one. Many employers, having struggled to hire after huge layoffs during the pandemic, may decide to retain most of their workforces even in a shrinking economy.

Six months of economic decline is a long-held informal definition of a recession. Yet nothing is simple in a post-pandemic economy in which growth was negative in the first half of last year but the job market remained robust, with ultra-low unemployment and healthy levels of hiring. The economy’s direction has confounded the Fed’s policymakers and many private economists ever since growth screeched to a halt in March 2020, when COVID-19 struck and 22 million Americans were suddenly thrown out of work.

Inflation, the economy’s biggest threat last year, is now showing signs of steadily declining. Used and new cars are becoming less expensive. Price increases for furniture, clothes and other physical goods are slowing.

Last year, the Fed raised its benchmark interest rate seven times, from zero to a range of 4.25% to 4.5%. The Fed’s policymakers have projected that they will keep raising their key rate until it tops 5%, which would be the highest level in 15 years. As borrowing costs swell, fewer Americans can afford a mortgage or an auto loan. Higher rates, combined with inflated prices, could deprive the economy of its main engine — healthy consumer spending.

Fed officials have made clear that they’re willing to tip the economy into a recession if necessary to defeat high inflation, and most economists believe them. Many analysts envision a recession beginning as early as the April-June quarter this year.

So what is the likelihood of a recession? Here are some questions and answers:

WHY DO MANY ECONOMISTS FORESEE A RECESSION?

They expect the Fed’s aggressive rate hikes and high inflation to overwhelm consumers and businesses, forcing them to slow their spending and investment. Businesses will likely also have to cut jobs, causing spending to fall further.

Consumers have so far proved remarkably resilient in the face of higher rates and rising prices. Still, there are signs that their sturdiness is starting to crack.

Retail sales have dropped for two months in a row. The Fed’s so-called beige book, a collection of anecdotal reports from businesses around the country, shows that retailers are increasingly seeing consumers resist higher prices.

Credit card debt is also rising — evidence that Americans are having to borrow more to maintain their spending levels, a trend that probably isn’t sustainable.

More than half the economists surveyed by the National Association for Business Economics say the likelihood of a recession this year is above 50%.

___

WHAT ARE SOME SIGNS THAT A RECESSION MAY HAVE BEGUN?

The clearest signal would be a steady rise in job losses and a surge in unemployment. Claudia Sahm, an economist and former Fed staff member, has noted that since World War II, an increase in the unemployment rate of a half-percentage point over several months has always signaled a recession has begun.

Many economists monitor the number of people who seek unemployment benefits each week, a gauge that indicates whether layoffs are worsening. Weekly applications for jobless aid actually dropped last week to a historically low 190,000. Employers continue to add many jobs, causing the unemployment rate to fall in December to 3.5%, a half-century low, from 3.7%.

___

ANY OTHER SIGNALS TO WATCH FOR?

Economists monitor changes in the interest payments, or yields, on different bonds for a recession signal known as an “inverted yield curve.” This occurs when the yield on the 10-year Treasury falls below the yield on a short-term Treasury, such as the three-month T-bill. That is unusual. Normally, longer-term bonds pay investors a richer yield in exchange for tying up their money for a longer period.

Inverted yield curves generally mean that investors foresee a recession that will compel the Fed to slash rates. Inverted curves often predate recessions. Still, it can take 18 to 24 months for a downturn to arrive after the yield curve inverts.

Ever since July, the yield on the two-year Treasury note has exceeded the 10-year yield, suggesting that markets expect a recession soon. And the three-month yield has also risen far above the 10-year, an inversion that has an even better track record at predicting recessions.

___

WHO DECIDES WHEN A RECESSION HAS STARTED?

Recessions are officially declared by the obscure-sounding National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

The committee considers trends in hiring. It also assesses many other data points, including gauges of income, employment, inflation-adjusted spending, retail sales and factory output. It puts heavy weight on a measure of inflation-adjusted income that excludes government support payments like Social Security.

Yet the NBER typically doesn’t declare a recession until well after one has begun, sometimes for up to a year.

___

DOES HIGH INFLATION TYPICALLY LEAD TO A RECESSION?

Not always. Inflation reached 4.7% in 2006, at that point the highest in 15 years, without causing a downturn. (The 2008-2009 recession that followed was caused by the bursting of the housing bubble).

But when it gets as high as it did last year — it reached a 40-year peak of 9.1% in June — a downturn becomes increasingly likely.

That’s for two reasons: First, the Fed will sharply raise borrowing costs when inflation gets that high. Higher rates then drag down the economy as consumers are less able to afford homes, cars and other major purchases.

High inflation also distorts the economy on its own. Consumer spending, adjusted for inflation, weakens. And businesses grow uncertain about the future economic outlook. Many of them pull back on their expansion plans and stop hiring. This can lead to higher unemployment as some people choose to leave jobs and aren’t replaced.

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Alejandro Lazo and Jeanne Kuang | Calmatters.org

California faces a projected deficit next year even if the U.S. avoids a recession. Despite the expected shortfall, policymakers say they’ll maintain spending on social programs though advocates are calling for more.

The Legislative Analyst’s Office recently said in its annual forecast that Gov. Gavin Newsom and the Democratic Party-controlled Legislature are facing a $24 billion projected budget deficit for the next fiscal year.

If the state enters a recession the outlook is even worse, with revenues predicted to fall short by $30 billion to $50 billion. The governor signed a record-breaking $308 billion budget in June.

The legislative analyst attributes the projected shortfall to California’s reliance on those whose incomes often ebb and flow with the price of stocks, real estate and other investments.

“Those are the same people who get a lot of their income from financial investments,” said Legislative Analyst Gabriel Petek. “That volatility then gets transmitted directly to the state budget.”

The governor will present a proposed budget in January and then a revision in May. The budget, which the Legislature must approve, will fund state government for the fiscal year beginning July 1.

H.D. Palmer, spokesperson for the state Department of Finance, declined to comment on whether social spending cuts might be proposed.

He did say, however, that the governor’s priority was to not scale back programs that people have come to depend on, or to begin new ones. Some program expansions in later fiscal years could be delayed if there isn’t enough revenue to support them, he said. The goal is to avoid the kind of drastic program reductions enacted during the Great Recession that took years for the state to restore.

Building reserves

The state’s Democratic legislative leaders have said they are not inclined to cut recently expanded programs, such as the extension of free health care to low-income undocumented immigrants, which began with older adults this year and is slated to open up to all ages in January 2024. The expansion is expected to cost more than $2 billion annually.

The budget is in a much stronger position than it was during the state’s last fiscal crisis, said Phil Ting, the Assembly budget committee chair from San Francisco.

“We have a significant amount of cash available, both in terms of reserves, but also in terms of liquidity,” Ting said. “So this is a very different situation than the state faced in 2008-2009, where they were running out of cash.”

The governor, nevertheless, has signaled he is being cautious. Newsom in October said he had vetoed 169 bills and saved taxpayers billions. Seventy-five of those vetoes were directly budget related, with many including boilerplate language that the state was facing “lower-than-expected revenues” and that it was “important to remain disciplined when it comes to spending, particularly spending that is ongoing.”

Among the bills vetoed by the governor earlier this year were proposals to expand government-funded care for new mothers, expand free transit programs for California students and create grants for graduate students in mental health who commit to working at certain California-based nonprofits.

Newsom, whom voters elected to another four-year term, has used surpluses to pay down debts, build reserves and provide direct payments to millions of Californians. 

Recently Moody’s Analytics rated California one of the states most prepared for a recession, citing its reserves.

Nevertheless, California’s budget enacted in June 2021 committed to $3.4 billion in new ongoing spending and is expected to grow to $12 billion in the 2025 budget year. The budget enacted in June of this year committed an additional $2.3 billion, expected to grow to nearly $5 billion by the 2026 budget year, the Legislative Analyst’s Office said.

The state has $37 billion in specific reserve funds. That includes about $23 billion in a rainy day fund voters agreed to strengthen in 2014 at the urging of then-Gov. Jerry Brown. The state also has $900 million in a reserve account for safety net programs. The rest of those reserve funds are in school-specific and general operating reserves.

But, Palmer noted, the state can only draw down the rainy day fund by half in any year. The Legislative Analyst’s Office has advised the Legislature to slow down or pause program expansions before dipping into reserves.

Ting’s office contends the state has billions in unspent federal and state dollars in its coffers that could address a potential deficit. Using that money would avoid cuts to programs but delay other projects. 

Is it time to spend?

Anti-poverty advocates said in interviews they plan to continue pushing for program expansions, arguing the precipice of a downturn is the time to bolster social spending, not cut it. 

Nearly 30% of California residents live in or near poverty, according to the Public Policy Institute of California. Experts expect poverty rates to increase after the end of a boost in federal cash aid, which came in 2021 in the form of an expanded child tax credit included in the American Rescue Plan Act.

Advocates are proposing that California mimic that federal expansion by opening up the state’s Young Child Tax Credit, currently a $1,000-a-year credit for low-income families with children under age 6, to include all children in low-income households. 

They estimate 1 million children live in families that would qualify, at an additional cost of $700 million a year.

Additional tax credits could make a difference to people like Ivonne Sonato-Vega, a medical assistant in Santa Rosa. 

Last year she used some of the $4,000 in federal child tax credits on school supplies and clothes for the four children she and her boyfriend are raising, she said. With prices rising this year, she was unable to save any of that subsidy. 

If the credits were an annual payment, she said, it would allow her to plan for expenses, maybe use it as “a little savings account” to draw on when the children grow out of their clothes or save it for a security deposit if the family needs to move.

“It was kind of like a tease,” she said of the credit. “It was here and then not.”

Advocates said they also want the state to create an unemployment benefits program for undocumented immigrants and to include all low-income immigrants, regardless of immigration status, in its food assistance program. 

“We know the projected budget shortfalls make it more challenging, but the past few years highlighted why something like this is so important,” said Sasha Feldstein, economic justice policy manager at the California Immigrant Policy Center. “People who are excluded from our safety net have been the most adversely impacted from the COVID-19 pandemic and are the most harmed during times of economic downturn.”

Lawmakers and Newsom this year allocated money to expand the California Food Assistance Program, a state version of food stamps, to include undocumented immigrants age 55 and older; the benefits are expected to become available late next year. Newsom vetoed a bill that would have tested an unemployment benefits program for undocumented immigrants, citing costs.

The makings of a budget problem

The projected shortfall is the state’s first major fiscal challenge since Newsom’s office predicted a $54 billion shortfall in May 2020, when the country was in the grips of the COVID-19 pandemic. After financial markets rebounded and the federal government provided unprecedented stimulus, the anticipated shortfall resulted in surpluses.

The Federal Reserve began hiking interest rates in March 2022 to cool inflation. Then housing sales, initial public stock offerings and stock markets fell. All are important sources of personal income tax revenue.

In California, personal income withholding fell even as the job market recovered.

Over the last decade, California has increasingly relied on some of the state’s highest earners to fund its budget which, among other things, takes aim at poverty and some of the nation’s starkest income inequality.

Much of the state’s general fund is paid for by its progressive personal income tax, which voters in 2012 raised on the state’s highest earners after Brown warned of cuts to health and education. In 2016 voters extended those higher income tax rates through 2030 while also allowing a temporary sales tax to expire. The increases, meant for education and healthcare spending, have also paid for increased social safety net spending.

About 49% of the personal income tax paid in California in 2020 came from just 1% of tax filers, according to the state’s finance department. And in the past decade, taxes collected from the most volatile form of income — capital gains — have doubled, making up a larger share of the state’s revenue and tying the state’s budget to particularly unstable economic cycles. 

To address that, voters approved changes to the state’s rainy day fund in 2014. The changes serve as a check on spending, directing California to capture additional dollars in reserve when capital gains tax receipts are high. 

Building reserves large enough for a state to ride through a recession is difficult, said Donald Boyd, a state finance expert at the University of Albany in New York. 

“As a practical matter, it is very hard to build a rainy day fund that’s big enough to get you through a rainy season,” Boyd said. “You need huge amounts of money to offset the effects of even a modest recession.”

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AP News | Paul Wiseman

WASHINGTON (AP) — U.S. employers added an astonishing 528,000 jobs last month despite flashing warning signs of an economic downturn, easing fears of a recession and handing President Joe Biden some good news heading into the midterm elections.

Unemployment dropped another notch, from 3.6% to 3.5%, matching the more than 50-year low reached just before the pandemic took hold.

The economy has now recovered all 22 million jobs lost in March and April 2020 when COVID-19 slammed the U.S.

The red-hot numbers reported Friday by the Labor Department are certain to intensify the debate over whether the U.S. is in a recession.

“Recession — what recession?” wrote Brian Coulton, chief economist at Fitch Ratings. “The U.S. economy is creating new jobs at an annual rate of 6 million — that’s three times faster than what we normally see historically in a good year.”

Economists had expected only 250,000 new jobs last month, in a drop-off from June’s revised 398,000. Instead, July proved to be the best month since February.

The strong figures are welcome news for the Biden administration and the Democrats at a time when many voters are worried about the economy.

Inflation is raging at its highest level in more than 40 years, and the economy has contracted for two quarters in a row, which is the common — but informal — definition of a recession and does not take into account a host of other factors economists consider, such as the job picture.

At the White House, Biden credited the job growth to his policies, even as he acknowledged the pain being inflicted by inflation. He emphasized the addition of 642,000 manufacturing jobs on his watch.

“Instead of workers begging employers for work, we’re seeing employers have to compete for American workers,” the president said.

Biden has boosted job growth through his $1.9 trillion coronavirus relief package and $1 trillion bipartisan infrastructure law last year. Republican lawmakers and some leading economists, however, say the administration’s spending has contributed to high inflation.

The president has received some other encouraging economic news in recent weeks, as gasoline prices have steadily fallen after averaging slightly more than $5 a gallon in June.

On Wall Street, stocks closed mostly lower Friday. The good news about job creation was mostly offset by worries that the Federal Reserve will have to keep aggressively raising interest rates to cool the economy and tamp down inflation.

“The strength of the labor market in the face of … rate-tightening from the Fed already this year clearly shows that the Fed has more work to do,” said Charlie Ripley, senior investment strategist at Allianz Investment Management. “Overall, today’s report should put the notion of a near-term recession on the back burner for now.″

The Labor Department also reported that hourly earnings posted a healthy 0.5% gain last month and are up 5.2% over the past year. But that is not enough to keep up with inflation, and many Americans are having to scrimp to pay for groceries, gasoline, even school supplies.

Job growth was especially strong last month in the health care industry and at hotels and restaurants.

The number of Americans saying they had jobs rose by 179,000, while the number saying they were unemployed fell by 242,000. But 61,000 Americans dropped out of the labor force in July, trimming the share of those working or looking for work to 62.1% from 62.2% in June.

New Yorker Karen Smalls, 46, started looking for work three weeks ago as a member of the support staff for social workers.

“I didn’t realize how good the job market is right now,” she said after finishing her fifth interview this week. “You look at the news and see all these bad reports … but the job market is amazing right now.’’

A single mother, she is weighing several offers, looking for one that is close to home and pays enough to let her take care of her two children.

Two years ago, the pandemic brought economic life to a near standstill as companies shut down and millions of people stayed home or were thrown out of work. The U.S. plunged into a deep, two-month recession.

But massive government aid — and the Fed’s decision to slash interest rates and pour money into financial markets — fueled a surprisingly quick recovery. Caught off guard by the strength of the rebound, factories, shops, ports and freight yards were overwhelmed with orders and scrambled to bring back the workers they furloughed when COVID-19 hit.

The result has been shortages of employees and supplies, delayed shipments and high inflation. In June, consumer prices were up 9.1% from a year earlier, the biggest increase since 1981.

The Fed has raised its benchmark short-term interest rate four times this year in a bid to tame inflation, with more increases ahead.

Labor Secretary Marty Walsh conceded that businesses and consumers are worried about inflation but added: “Companies are still growing, and they’re looking for employees. And that’s a good sign.”

In a report filled with mostly good news, the Labor Department did note that 3.9 million people were working part time for economic reasons in July, up by 303,000 from June. Department economists said that reflected an increase in the number of people whose hours were cut because of slack business.

Some employers are also reporting signs of slack in the job market.

Aaron Sanandres, CEO and co-founder Untuckit, an online clothing company with nearly 90 stores, noticed that in the past few weeks that it has been a bit easier filling jobs at the corporate headquarters in New York and part-time roles at the stores.

“We have had a plethora of candidates,” Sanandres said. He also said the labor market has been loosening up for engineers, probably as a result of some layoffs at technology companies.

Simona Mocuta, chief economist at State Street Global Advisors, was among those stunned by the strong hiring numbers when other indicators show an economy losing momentum.

Mocuta said it is possible that hiring rose so sharply last month because job candidates, seeing signs of an impending slowdown, are now more willing to accept jobs they would have balked at earlier in the year. Conditions may now be “shifting in employers’ favor,” she said.

Whatever the reason for it, the employment data released Friday shows an astonishingly strong and resilient job market.

”Underestimate the U.S. labor market at your own peril,″ said Nick Bunker, head of economic research at the Indeed Hiring Lab. “Yes, output growth might be slowing and the economic outlook has some clouds on the horizon. But employers are still champing at the bit to hire more workers. That demand may fade, but it’s still red-hot right now.″

Josh Boak in Washington, Anne D’Innocenzio in New York and Courtney Bonnell in London contributed to this story.

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NEW YORK (AP) — Prices for gas, food and rent are soaring. The Federal Reserve has raised interest rates to the highest level since 2018. The U.S. economy has shrunk for two straight quarters.

Economists are divided over whether a recession is looming. What’s clear is that economic uncertainty isn’t going away anytime soon. But there are steps you can take now to be ready for whatever is ahead.

Yiming Ma, an assistant professor at Columbia University, says it’s not a question of if but when a recession will happen. People should prepare but not panic, she said.

“Historically the economy has always been going up and down,” said Ma. “It’s something that just happens, it’s a bit like catching a cold.”

But, she notes, some people’s immune systems are better able to recover than others. It’s the same with finances. If you think a recession could destabilize yours, here are some things you can do to prepare.

___

KNOW YOUR EXPENSES AND MAKE A BUDGET

Knowing how much you spend every month is key. Ma recommends sitting down and writing how much you spend day-to-day. This will help you see what’s coming in, what’s going out, and which unnecessary expenses you might be able to cut.

“By understanding what money you are getting and what you are spending, you may be able to make changes to help you through tough times,” advises the Federal Deposit Insurance Corporation’s Money Smart, a financial education program.

Budgets often reveal expenses that can be eliminated entirely or impulsive spending that can be avoided with planning.

For guidance creating a budget, free courses such as “ Creating a budget (and sticking to it) ” by CT Dollars and Sense, a partnership of Connecticut state agencies, and Nerd Wallet’s Budget Calculator can be good places to start.

SAVE AS YOU CAN

The more non-essential expenses you can cut, the more you can save.

It’s not possible for everyone, but Gene Natali, cofounder of Troutwood, an app that helps people create financial plans, says it’s ideal to budget to save enough to cover basic necessities for three to six months.

Programs such as America Saves, a non-profit campaign by the Consumer Federation of America, can help create a roadmap.

And if you do have a savings account, it’s important to check whether your bank gives you a good interest rate and shop around if it doesn’t, Ma said.

Her advice is to keep an eye on the monthly fees or service charges that might eat into your savings. But don’t limit your options. Online banks sometimes offer better rates than traditional ones.

CONSOLIDATE YOUR LOANS, AND DON’T TAKE ANY MORE

As interest rates rise, experts recommend that you consolidate your loans to have just one fixed-rate loan and, if you can, pay down as much of your debt as possible.

“Job security tends to be worse when a recession comes, it’s not a great time to accumulate debt,” said Ma.

But paying off your existing debt is easier said than done. The Federal Trade Commission’s Consumer Advice guide for Getting Out of Debt can help you make a plan.

With interest rates high, it’s also not a great time to take out new loans for big expenses like cars, though experts do recommend that if you need durable goods such as vacuum cleaners, stoves or dishwashers, you buy them as soon as possible to avoid future price increases.

VISIT SECOND-HAND STORES AND YARD SALES

Allen Galeon, an in-home caregiver in California, has been affected for months by the rising prices of household staples like groceries, paper towels, and gas for his commute.

His son’s favorite Hi-C orange juice, which was $1.99 for a six-pack, is now $2.50.

Since the start of the pandemic, when Galeon cut down from caring for multiple families to a single client to reduce his health risks, his household has dealt with financial instability.

One choice he’s made is to buy items like clothes or electronics second-hand whenever possible, whether from Goodwill, pawn shops, or Craigslist. And Craigslist allows you to search by area, to cut down on driving – which means less gas and inconvenience.

NEGOTIATE YOUR MONTHLY BILLS

Since the pandemic, many companies have updated their relief policies and have become more flexible with users, according to Kia McCallister-Young, director of America Saves.

Calling providers of monthly services to negotiate bills — whether it’s utilities, phone service, cable, internet, or auto insurance — can lead to meaningful savings, said McCallister-Young. Individuals can ask for the best rate, any available discounts, rebates, or coupons that can lead to a lowered monthly fee. If a provider is competitive with other companies, there’s an even better chance of getting a discount, she added.

“If you tell them, ‘I’m thinking of changing’ or that you’re shopping around, that helps — if they know you’re considering leaving, they’ll give you the best rate, and the goal right now is to find as much cashflow as possible,” she said.

Check out federal programs such as the Low Income Home Energy Assistance Program, which helps cover bills, and Lifeline, which can assist with phone bills. If you are unsure if you qualify for any federal or state program, you can call 211, which will connect you with a local specialist who can assist you.

SWITCH UP YOUR GROCERIES

Grocery shopping with a meal plan, buying generic rather than brand-name or purchasing in bulk are some of the recommendations from the Consumer Federation of America.

“A lot of stores have price matching, so if you show them that a competitor is selling the same product at a lower rate, they’ll match that,” said McCallister-Young. “You also want to be looking at the stores that are closest to you, so you’re not spending the extra money you’d save on gas.”

An alternative way to save money on groceries is to check out food sharing apps such as Olio, which connects people around their community to share extra grocery items, and Too Good to Go, where customers can buy businesses’ surplus food at a discount.

LOOK AT GOVERNMENT ASSISTANCE PROGRAMS

Even with these saving and spending practices, a month’s wages aren’t always enough to cover important expenses. If this is your situation, programs around the country are available to assist you.

“Sometimes there just isn’t enough ‘end of the month’ at the end of the month,” said Michael Best, an attorney at the National Consumer Law Center who works on financial services issues.

To make use of these resources, check if you qualify for the Emergency Rental Assistance Program, Supplemental Nutrition Assistance Program, Farmers Market Nutrition Program, or the Homeowner Assistance Fund. All of these are federal programs coordinated by state governments. Some states offer additional local programs for their residents.

LOOK FOR COMMUNITY ASSISTANCE

If you are experiencing food or housing insecurity, look for non-profit or community organizations around you. From housing support and food banks to utility assistance, non-profit organizations around the country can help. National organizations such as Feeding America host food banks in all 50 states.

“We’re already seeing the community reaching out to us in overwhelming numbers because of what’s happening in the country in terms of economic stability,” said Kavita Mehra of Sakhi for South Asian Women, an organization that helps domestic violence survivors in New York City.

Her organization provides housing, food, and cash emergency assistance for people in the community. She said that between January and June, her group distributed over $150,000 in emergency cash assistance to survivors who were having a harder time keeping the lights on and putting food on the table. That’s more than all of last year.

Food assistance organizations such as Ample Harvest, Hunger Free America and Food Rescue US offer maps that allow users to search a nearby food bank by typing their zip code.

TAKE CARE OF YOUR MENTAL HEALTH

Between worrying about the bills and not knowing what your financial future might look like, your stress levels can go through the roof.

“It’s a hectic existence,” Galeon said. “You have to do a lot of managing, and you have to keep a cool head, for the sake of your mental health.”

Debra Kissen, a clinical director of Light On Anxiety CBT Treatment Center, recommends first recognizing when your body is stressed. Then she advises mindfulness exercises such as breathing, touching a wall to calm yourself, and completing the “five senses for anxiety relief” exercise.

Most health insurance covers some type of mental health assistance. If you don’t have health insurance, you can look for sliding-scale therapists around the country, including through FindTreatment.gov and the Anxiety and Depression Association of America directory.

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Facing a potentially grim report this week on the economy’s overall health, President Joe Biden wants to convince a skeptical public that the U.S. is not, in fact, heading into a recession.

The Commerce Department on Thursday will release new gross domestic product figures. Top forecasts such as the Atlanta Federal Reserve’s GDPNow are predicting that the figure will be negative for the second straight quarter — an informal signal that the country is stuck in a downturn.

The White House is disputing that benchmark, but it will likely otherwise prove political chum for Republicans in an election year.

“Two negative quarters of GDP growth is not the technical definition of recession,” National Economic adviser Brian Deese insisted during Tuesday’s White House press briefing. He added that “the most important question economically is, whether working people, and middle class families, have more breathing room.”

Deese and other members of the Biden administration are pre-emptively telling voters not to judge the economy by GDP or inflation alone. They say people should look at job gains, industrial output and other measures that point toward continued growth, even as Americans are downbeat in polls on the economy and Biden.

The president himself maintains the economy is just cooling off after a sharp recovery from the 2020 recession caused by the coronavirus pandemic.

“We’re not going to be in a recession, in my view,” Biden said Monday. “My hope is we go from this rapid growth to steady growth.”

The specter of a recession could worsen what already appears to a bleak round of midterm elections this November, in which Biden’s Democrats could possibly lose control of the House and Senate. Biden’s team gave technical arguments in a report issued last week about how recessions depend on a dashboard of indicators and that only the non-governmental National Bureau of Economic Research can formally say when a downturn begins.

Republicans warn that the GDP report could show an economy in collapse, noting that Biden was also wrong on inflation as the consumer price index has jumped to a 40-year high despite assurances that the price increases would fade as the country moved past the pandemic.

“The White House published a whole explanation insisting that even if the new data suggest that our country is in recession, we actually won’t be,” Senate Republican Leader Mitch McConnell said in Monday in a speech to the Senate.

“The same people who said inflation wouldn’t happen,” he continued, “are now insisting we aren’t headed into a recession. Draw your own conclusions.”

The GDP report will likely be a “choose your own economy” kind of messaging in which voters will decide which numbers resonate with them the most. It’s GOP bluntness against Democratic nuance.

“You’ll have Republicans saying two consecutive quarters of negative growth — that’s a recession,” said Michael Strain, director of economic policy studies at the center-right American Enterprise Institute. “And you’ll have Democrats making this kind of hard to follow argument that we’re not in recession, but, yes, we are slowing down. If I had to bet, I would bet that the Republican argument gets more traction.”

Not only is the likely GOP message more direct, it also leans into how many Americans feel right now.

A July poll from The Associated Press-NORC Center for Public Affairs Research found that 83% believe the U.S. is going in the wrong direction. That’s a sharp reversal from May of 2021 when 54% said the country was headed in the right direction, a level of approval that overlapped with an increase in vaccinations against COVID-19 and payments flowing from Biden’s $1.9 trillion pandemic relief package.

Separately, the University of Michigan’s index of consumer sentiment is lower now than it was during the worst months of the 2008 financial crisis, an epic recession that involved the crash of the housing and stock markets and required a burst of government aid.

The negativity has left the Biden administration trying to make the case that things are better than people think. Their argument starts with the torrid pace of hiring, with an average of 375,000 jobs being added monthly during the second quarter. Unemployment has held at 3.6% since March.

An alternative measure of the overall economy called gross domestic income contradicts GDP, showing that there was growth during the first three months of the year instead of decline. And gasoline prices, a core vulnerability for Biden, have fallen more than 60 cents a gallon since the middle of June, evidence that some inflationary pressures are easing.

Both publicly and privately, administration officials say the GDP report won’t tell the whole story.

“When you’re creating almost 400,000 jobs a month, that is not a recession,” Treasury Secretary Janet Yellen said Sunday on NBC’s “Meet the Press.”

Still, inflation has undermined the robust job market. Wage gains have failed to keep pace with price increases, meaning many people are effectively earning less money. There are also economic threats from abroad as China and many European economies are slowing down in ways that could spill over to the U.S. as the Federal Reserve is focused on raising interest rates in order to lower inflation.

But so long as hiring continues, liberal economists believe that public opinion will change and fears of a recession will fade. The White House analyses are “grounded in data,” said Heidi Shierholz, president of the liberal Economic Policy Institute.

“People will understand that if we continue to have extremely low unemployment that the idea we’re in a recession just doesn’t make a lot of sense,” she said.

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WASHINGTON (AP) — The U.S. economy shrank from April through June for a second straight quarter, contracting at a 0.9% annual pace and raising fears that the nation may be approaching a recession.

The decline that the Commerce Department reported Thursday in the gross domestic product — the broadest gauge of the economy — followed a 1.6% annual drop from January through March. Consecutive quarters of falling GDP constitute one informal, though not definitive, indicator of a recession.

The GDP report for last quarter pointed to weakness across the economy. Consumer spending slowed as Americans bought fewer goods. Business investment fell. Inventories tumbled as businesses slowed their restocking of shelves, shaving 2 percentage points from GDP.

Higher borrowing rates, a consequence of the Federal Reserve’s series of rate hikes, clobbered home construction, which shrank at a 14% annual rate. Government spending dropped, too.

The report comes at a critical time. Consumers and businesses have been struggling under the weight of punishing inflation and higher loan costs. On Wednesday, the Fed raised its benchmark rate by a sizable three-quarters of a point for a second straight time in its push to conquer the worst inflation outbreak in four decades.

The Fed is hoping to achieve a notoriously difficult “soft landing”: An economic slowdown that manages to rein in rocketing prices without triggering a recession.

Apart from the United States, the global economy as a whole is also grappling with high inflation and weakening growth, especially after Russia’s invasion of Ukraine sent energy and food prices soaring. Europe, highly dependent on Russian natural gas, appears especially vulnerable to a recession.

In the United States, the inflation surge and fear of a recession have eroded consumer confidence and stirred anxiety about the economy, which is sending frustratingly mixed signals. And with the November midterm elections nearing, Americans’ discontent has diminished President Joe Biden’s public approval ratings and could increase the likelihood that the Democrats will lose control of the House and Senate.

Fed Chair Jerome Powell and many economists have said that while the economy is showing some weakening, they doubt it’s in recession. Many of them point, in particular, to a still-robust labor market, with 11 million job openings and an uncommonly low 3.6% unemployment rate, to suggest that a recession, if one does occur, isn’t here yet.

“The back-to-back contraction of GDP will feed the debate about whether the U.S. is in, or soon headed for, a recession,” said Sal Guatieri, senior economist at BMO Capital Markets. “The fact that the economy created 2.7 million payrolls in the first half of the year would seem to argue against an official recession call for now.”

Still, Guatieri said, “the economy has quickly lost steam in the face of four-decade high inflation, rapidly rising borrowing costs and a general tightening in financial conditions.”

In the meantime, Congress may be moving toward approving action to fight inflation under an agreement announced Wednesday by Senate Majority Leader Chuck Schumer and Sen. Joe Manchin, a West Virginia Democrat. Among other things, the measure would allow Medicare to negotiate prescription drug prices with pharmaceutical companies, and the new revenue would be used to lower costs for seniors on medications.

In the wake of Thursday’s government report, Biden dismissed any notion that the data depicted an economy in recession. The administration has stressed that solid job growth and low unemployment show that the U.S. economy is still growing despite two consecutive quarterly declines in GDP. Speaking from the White House, Biden leaned on remarks that Powell and other economic leaders have made.

“Both Chairman Powell and many of the significant banking personnel and economists say we’re not in recession,” the president said.

The government’s first of three estimates of GDP for the April-June quarter marked a drastic weakening from the 5.7% growth the economy achieved last year. That was the fastest calendar-year expansion since 1984, reflecting how vigorously the economy roared back from the brief but brutal pandemic recession of 2020.

But since then, the combination of mounting prices and higher borrowing costs have taken a toll. The Labor Department’s consumer price index skyrocketed 9.1% in June from a year earlier, a pace not matched since 1981. And despite widespread pay raises, prices are surging faster than wages. In June, average hourly earnings, after adjusting for inflation, slid 3.6% from a year earlier, the 15th straight year-over-year drop.

Americans are still spending, though more tepidly. Thursday’s report showed that consumer spending rose at a 1% annual pace from April through June, down from 1.8% in the first quarter and 2.5% in the final three months of 2021.

Spending on goods like appliances and furniture, which had soared while Americans were sheltering at home early in the pandemic, dropped at a 4.4% annual rate last quarter. But spending on services, like airline trips and dinners out, rose at a 4.1% rate, indicating that millions of consumers are venturing out more.

Before accounting for surging prices, the economy actually grew at a 7.8% annual pace in the April-June quarter. But inflation wiped out that gain and then some and produced a negative GDP number.

Against that backdrop, Americans are losing confidence. Their assessment of economic conditions six months from now has reached its lowest point since 2013, according to the Conference Board, a research group.

The Fed’s hikes have already led to higher rates on credit cards and auto loans and to a doubling of the average rate on a 30-year fixed mortgage in the past year, to 5.5. Home sales, which are especially sensitive to interest rate changes, have tumbled.

Even with the economy recording a second straight quarter of negative GDP, many economists do not regard it as constituting a recession. The definition of recession that is most widely accepted is the one determined by the National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

The committee assesses a range of factors before publicly declaring the death of an economic expansion and the birth of a recession — and it often does so well after the fact.

“If we aren’t yet in a recession, we soon will be,″ said Joshua Shapiro, chief U.S. economist for the economic consulting firm Maria Fiorini Ramirez Inc. “An economy rapidly losing momentum combined with aggressive monetary tightening is not a recipe for a soft landing or any other type of happy ending.″

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WASHINGTON (AP) — Jerome Powell delivered a tough message at the start of a news conference Wednesday: Inflation is way too high, and the Federal Reserve is laser-focused on taming it with higher borrowing costs.

Yet despite his resolute words, the Fed chair also said for the first time that the central bank’s actions are already having an effect on the economy in ways that could slow the worst inflation the nation has endured in four decades.

With the Fed’s benchmark interest rate now at a level that’s believed to neither stimulate nor restrain growth, Powell said the pace of rate hikes could slow in the coming months. And he pointed to signs that many businesses are having an easier time filling jobs, a trend that would limit pay increases and potentially slow inflation.

“There were some hints that we’re closer to the end than the beginning” of the Fed’s efforts to tighten credit, said Michael Feroli, an economist at JPMorgan Chase and a former Fed staffer.

Powell’s suggestion that the Fed could moderate its future rate hikes after it announced a three-quarter-point hike Wednesday — its second in a row of that substantial size — helped touch off a celebratory rally in the stock market, with the S&P 500 jumping 2.6% and the tech-heavy Nasdaq rocketing 4.1%, its biggest gain in more than two years.

Some economists didn’t share the market’s optimism. They noted that Powell kept the door open to another big rate increase when the Fed next meets in September. The Fed chair also indicated that even if the economy were to fall into a recession, the central bank would keep raising rates if it deemed that necessary to curb still-high inflation.

When asked at his news conference whether a recession would alter the Fed’s course of rate hikes, Powell said simply, “We’re going to be focused on getting inflation back down.”

Here are five takeaways from the Fed’s interest-rate setting policy meeting and Powell news conference:

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POWELL: U.S. NOT IN RECESSION

A slew of recent data has signaled the economy is weakening. Economists are increasingly forecasting a recession for later this year or in 2023. Powell, though, pointed Wednesday to the robust labor market as evidence the economy isn’t in recession, at least not yet.

Employers, he noted, added 2.7 million jobs in the first half of the year, the 3.6% U.S. unemployment rate is near a 50-year low and wage growth is strong.

“It doesn’t make sense that the economy could be in recession with this kind of thing happening,” the Fed chair said.

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JOBS OVER GDP

On Thursday, the government will estimate second-quarter gross domestic product, the broadest measure of the nation’s output of goods and services. Some economists think the GDP report will show that the economy contracted for a second straight quarter, which would meet an informal definition of recession.

But even if it does, the definition of recession that is most widely accepted is the one determined by the National Bureau of Economic Research, a group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

Powell also noted that the government’s estimate of quarterly GDP is often significantly revised later and that the initial reports on economic growth should be taken with “a grain of salt.”

The Fed chair did sound a cautionary note, pointing out that there are signs that momentum in the job market is easing. Job openings have declined modestly, more people are seeking unemployment aid and hiring is lower than it was at the start of the year.

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SLOWER GROWTH, HIRING GOOD

But even those signs of a slightly weaker job market are not all bad news, at least from the Fed’s perspective.

The Fed wants to cool the economy through its rate hikes, which make home mortgages, auto loans and business borrowing more expensive. As consumers and businesses spend less, the resulting pullback in demand can bring inflation down closer to the Fed’s 2% annual target.

“We think it’s necessary to have growth slow down, and growth is going to be slowing this year,” Powell said.

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HOW HIGH WILL RATES GO?

Since early this year, the Fed has steadily ratcheted up its forecasts for how fast and how high it would have to raise rates to conquer inflation. On Wednesday, though, Powell said that estimates that Fed policymakers made a month ago for where rates would go next was still the best guide.

In June officials projected that the Fed’s key rate would reach between 3.25% and 3.5% at the end of this year, which Powell said was a “moderately restrictive” level. And at least two additional rate hikes were forecast for next year.

For the Fed to meet that year-end target would involve a half-point increase in September, and two quarter-point hikes in November and December. Such increases would represent a much more modest pace than the 2.25 percentage points of hikes the Fed has now carried out in just the past four meetings, the fastest pace since the early 1980s.

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THE FED ISN’T ALONE

Other major central banks around the world have also been imposing big rate increases to combat inflation, which has spiked in nearly all advanced economies.

The European Union raised its short-term rate by a half-point last week. Canada’s central bank announced a full percentage point increase earlier this month. Last month, the Swiss National Bank implemented a half-point hike, its first increase in 15 years.

Although higher rates around the world could help throttle inflation, they also carry the threat of causing a global economic slowdown.

This week, the International Monetary Fund downgraded its outlook for world economic growth to 3.2% this year. That was down from a 3.6% estimate in April and much slower than last year’s 6.1% pace.

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WASHINGTON (AP) — By one common definition, the U.S. economy is on the cusp of a recession. Yet that definition isn’t the one that counts.

On Thursday, when the government estimates the gross domestic product for the April-June period, some economists think it may show that the economy shrank for a second straight quarter. That would meet a longstanding assumption for when a recession has begun.

But economists say that wouldn’t mean that a recession had started. During those same six months when the economy might have contracted, businesses and other employers added a prodigious 2.7 million jobs — more than were gained in most entire years before the pandemic. Wages are also rising at a healthy pace, with many employers still struggling to attract and retain enough workers.

The job market’s strength is a key reason why the Federal Reserve is expected to announce another hefty hike in its short-term interest rate on Wednesday, one day before the GDP report. Several Fed officials have cited the healthy job growth as evidence that the economy should be able to withstand higher rates and avoid a downturn. Many economists, though, are dubious of that assertion.

The Fed is also trying to combat raging inflation, which reached a 9.1% annual rate in June, the worst mark in nearly 41 years. Rapid price increases, particularly for such essentials as food, gas and rent, have eroded Americans’ incomes and led to much gloomier views of the economy among consumers.

The definition of recession that is most widely accepted is the one determined by the blandly named National Bureau of Economic Research, a nonprofit group of economists whose Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.” The committee assesses a wide range of factors before publicly declaring the death of an economic expansion and the birth of a recession — and it often does so well after the fact.

So if we’re not in a recession, what’s going on with the economy, which is sending frustratingly mixed signals? Here are some answers to those and other questions:

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IS THE ECONOMY SHRINKING — OR NOT?

It did in the first three months of the year, when GDP contracted 1.6% at an annual rate. Economists have forecast that on Thursday, the government will estimate that the economy managed to grow at an annual rate of just below 1% in the April-June quarter, according to data provider FactSet. If accurate, that forecast would indicate that the economy isn’t technically in recession by any definition.

Even if growth does go negative for a second straight quarter, Fed officials and Biden administration economists point to a lesser-known measure called “gross domestic income.”

GDP calculates the value of the nation’s output of goods and services by adding up spending by consumers, businesses and governments. By contrast, GDI, as the name implies, seeks to measure the same thing by assessing incomes.

Over time, the two measures should track each other. But they often diverge in the short run. In the first quarter, GDI grew 1.8% — much better than the 1.6% decline in GDP.

As part of its judgment of whether an economy is in recession, the NBER considers an average of the two measures. In the first quarter, the average was 0.2%, suggesting that the economy expanded slightly.

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WHAT ELSE DOES THE NBER MONITOR?

The NBER studies many other data points in determining recessions, including measures of income, employment, inflation-adjusted spending, retail sales and factory output. It puts greater weight on jobs and a gauge of inflation-adjusted income that excludes government support payments such as Social Security.

That gauge covers combined income from all workers, so it rises when the unemployed find a job or when existing workers receive a pay raise. The measure increased slightly in April and May after a flat reading in the first quarter of this year.

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BUT DON’T A LOT OF PEOPLE THINK A RECESSION IS COMING?

Yes, because many people now feel more financially burdened.

With wage gains trailing inflation for most people, higher prices for such essentials as gas, food, and rent have eroded Americans’ spending power,

On Monday, Walmart reported that higher gas and food costs have forced its shoppers to reduce their purchases of discretionary spending such as new clothing, a clear sign that consumer spending, a key driver of the economy, is weakening. The nation’s largest retailer, Walmart reduced its profit outlook and said it will have to discount more items like furniture and electronics.

And the Fed’s rate hikes have caused average mortgage rates to double from a year ago, to 5.5%, causing a sharp fall in home sales and construction.

Higher rates will also likely weigh on businesses’ willingness to invest in new buildings, machinery and other equipment. If companies reduce spending and investment, they’ll also start to slow hiring. Rising caution among companies about spending freely could lead eventually to layoffs. If the economy were to lose jobs and the public were to grow more fearful, consumers would further reduce spending.

The Fed’s rapid rate hikes have raised the likelihood of recession in the next two years to nearly 50%, Goldman Sachs economists have said. And Bank of America economists now forecast a “mild” recession later this year.

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WHAT ARE SOME SIGNS OF AN IMPENDING RECESSION?

The clearest signal that a recession is under way, economists say, would be a steady rise in job losses and a surge in unemployment. In the past, an increase in the unemployment rate of three-tenths of a percentage point, on average over the previous three months, has meant that a recession will soon follow.

Many economists monitor the number of people who seek unemployment benefits each week, which indicates whether layoffs are worsening. Last week, applications for jobless aid rose to 251,000, the highest level in eight months. While that is a potentially concerning sign, that is still a low level historically.

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ANY OTHER SIGNALS TO WATCH FOR?

Many economists also monitor changes in the interest payments, or yields, on different bonds for a recession signal known as an “inverted yield curve.” This occurs when the yield on the 10-year Treasury falls below the yield on a short-term Treasury, such as the 3-month T-bill. That is unusual. Normally, longer-term bonds pay investors a richer yield in exchange for tying up their money for a longer period.

Inverted yield curves generally mean that investors foresee a recession that will compel the Fed to slash rates. Inverted curves often predate recessions. Still, it can take 18 to 24 months for a downturn to arrive after the yield curve inverts.

For the past two weeks, the yield on the two-year Treasury has exceeded the 10-year yield, suggesting that markets expect a recession soon. Many analysts say, though, that comparing the 3-month yield to the 10-year has a better recession-forecasting track record. Those rates are not inverted now.

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WILL THE FED KEEP RAISING RATES EVEN AS THE ECONOMY SLOWS?

The economy’s flashing signals — slowing growth with strong hiring — have put the Fed in a tough spot. Jerome Powell is aiming for a “soft landing,” in which the economy weakens enough to slow hiring and wage growth without causing a recession and brings inflation back to the Fed’s 2% target.

But Powell has acknowledged that such an outcome has grown more difficult to achieve. Russia’s invasion of Ukraine and China’s COVID-19 lockdowns have driven up prices for energy food, and many manufactured parts in the U.S.

Powell has also indicated that if necessary, the Fed will keep raising rates even amid a weak economy if that’s what’s needed to tame inflation.

“Is there a risk that we would go too far?” Powell asked last month. “Certainly there’s a risk, but I wouldn’t agree that’s the biggest risk to the economy. The biggest mistake to make…would be to fail to restore price stability.”

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