Back in March, on the HerMoney Podcast, we tackled the million-dollar question: Are we in a recession? A few months and plenty of economic headlines later, we’re still asking. But now, the question feels even more urgent.
That’s because just weeks ago, credit-rating agency Moody’s downgraded U.S. debt, sparking fresh concerns about the economy’s direction and, most importantly, what it all means for our money.
This week on the HerMoney Podcast, Jean Chatzky sat down with Katie Klingensmith, Chief Investment Strategist at Edelman Financial Engines. With decades of experience as an economist and a gift for translating complex market trends into actionable advice, Katie shares exactly what’s happening in today’s economy — and how we can all prepare our finances for whatever comes next.
Deficit Drama: Why It’s Getting Harder to Ignore
Jean Chatzky: When we talk about the US debt or the deficit, we’ve got this ‘big beautiful bill’ that came out of the White House. And one of the things that this will do if it goes forward in its current form is give the United States a bigger debt load. What does this actually mean to consumers and investors?
Katie Klingensmith: Historically, we’ve run big deficits when the economy is doing poorly. It’s an idea called Keynesian economics that suggests when the economy is performing poorly, the government should spend extra money, including borrowing funds, to stimulate the economy.
What we’ve seen change over the last few years is that the US government is spending way more than it brings in, even when times are good. So does this matter? It doesn’t matter in the sense that the US government is seen as so credit worthy that more people are willing to lend the US government money than they are to invest or to lend money to anybody else. But when the US runs too big a debt, then we ask questions around: Is there an infinite amount of folks out there who are willing to park their money with the US government? Or is there so much debt that they might actually not get the same money back at the end?
Should You Hit Pause on Big Purchases?
Jean Chatzky: So, if you have a job, is now an okay time to make a big purchase like a house or a car? Is it a particularly bad time to do that? Are there things that we should be doing so that if the economy turns down, we individually are not as impacted?
Katie Klingensmith: Right now, there’s more uncertainty than we often experience. So it’s really hard for us to know what the world’s going to look like in six months. When that’s the case, it’s always emotionally helpful, but also rational to be a little bit more conservative. If you feel less confident that your job will be there for you, paying you bonuses, and giving you that opportunity for promotions, then you might want to be a little bit more conservative.
From an investment perspective, the last six months have been a reminder that things can go way down and way up. It’s a hard ride, so you have to make sure that you’re ready for that so that you can weather those kinds of ups and downs.
Bottom Line: Are We In A Recession?
Jean Chatzky: Do you think that we are headed into a recession? Or are we in a recession right now? And what are consumers and investors supposed to do with that information?
Katie Klingensmith: A recession is much more about how we feel about the economy and how we experience it. What a recession means is two consecutive quarters of contracting GDP. The overall size of the whole US economy shrinks for two quarters in a row, and we already saw it shrink this first quarter of the year. We don’t know yet for the second quarter, so we could be relatively close to what’s called a technical recession. That doesn’t necessarily mean that your life is awful. The US economy is kind of amazing in that even when we get slammed by all sorts of bad news, we tend to be especially and unusually resilient, even relative to other economies.
It’s partly because we spend money very reliably. It’s partly because we’re a flexible, innovative place. We’re working through a lot of changes right now, and that’s going to take us focusing on what we can control, on our own planning, and recognizing that on the investment side, we could get some ups and downs. We want to make sure that we can continue to live our lives, meet our obligations, and also sleep at night.
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