Washington, D.C. — As the economy shows warning sights that a recession is possible in the near future, a new Center for American Progress issue brief finds that the United States is unprepared to weather another recession but suggests steps that policymakers could take now to help buttress the economy and better prepare the country for when the recession comes.
In “The United States Is Not Ready for a Recession, But It Can Be,” Olugbenga Ajilore, senior economist at CAP, assesses the readiness of major tools that policymakers can use to guide the economy in a recession: monetary policy and fiscal policy. Ajilore finds:
- Because interest rates are low, monetary policy is likely to be less effective in combating the next recession.
- Fiscal policy will be crucial in fighting any coming downturn but will rely on policymakers’ willingness to use it the right way, which is not always the case.
- Among the most important fiscal tools are automatic stabilizers, or features of the federal government’s budget that automatically inject funds into the economy through transfer payments or tax reductions when the economy goes into recession or otherwise slumps.
- Unemployment insurance is an especially important automatic stabilizer during a recession because it provides a soft landing for individuals who face layoffs.
“People who are wondering when the next recession is going to come are asking the wrong question. It’s not a question of when but a question of ‘Are we ready?'” said Ajilore. “It’s clear that at the present moment, the United States is unprepared to manage a recession. Fortunately, we still have time to prepare. Automatic stabilizers, especially unemployment insurance, will be particularly crucial in helping people survive the next recession. But the time to act is now, or the next recession will hit even harder than the last.”
For more information on this topic or to speak to an expert, contact Julia Cusick at [email protected] or 202-495-3682.