Recession or Soft Landing: What Should You Do Right Now?

The Economy Is in a Fragile Equilibrium—Here’s How to Prepare

Is the economy about to go into a death sprial or crash?

That’s the question I’ve been getting the most lately. Apparently, as an economist, I have a crystal ball or something. More like a Magic 8 Ball—shake it, and it says:

No kidding.

Everywhere you look, people are in full meltdown mode over the economy. And look, I won’t sugarcoat it—things aren’t great. We’d be in for a bumpy ride even in the best times. But with the clown car of imbeciles currently running the show—between the President, Bessent, Lutnick, and company—it’s like watching a group of toddlers play Jenga with the global economy.

So, are we headed for a full-blown crash?

Even my daughter—who normally doesn’t care about “the economy”—is suddenly paying attention. Now that she has her first “big girl job” (a salaried, non-retail, non-coffee shop office gig), she’s hearing all kinds of dire predictions.

The other day, she comes up to me, panicked: “So-and-so at work says everything is going to crash, and I should pull all my money into cash because it’s going to be worse than 2008!”

I looked at her and said, “Yeah? And you were seven in 2008. What would you know?”

She throws up her hands. “Exactly! I have no idea what to do!”

Fair enough. So here’s my best read on what’s actually going on—what the real risks are, what’s just noise, and what you might actually want to do about it.

I’m not some armchair commentator, but I also don’t spend my days buried in spreadsheets at the Fed. Think of this as a near-expert take—somewhere between the panic-stricken news cycle and the academic wonks.

The Facts

The facts are that the economy is, at best, a mixed bag of data. Consumer spending is declining for the first time in nearly two years. The Atlanta Fed GDPNow looks like a heartbeat that just flatlined. The latest jobs report didn’t beat forecasts, joblessness ticked up, and the stock market has erased trillions in value over the past three weeks. Goldman Sachs economists upped their odds of a recession over the next 12 months from 15% to 20% last Friday, naming Trump’s economic policies as the “key risk,” while Yardeni Research raised their recession odds last Wednesday from 20% to 35%, citing “Trump 2.0’s head-spinning barrage of executives orders, firings, and tariffs.”¹

You're probably hyperventilating like my daughter if this is all you focus on. But other indicators suggest the economy isn't falling off a cliff—at least, not yet.

While the jobs report wasn’t spectacular, it did show job growth. Employers are still adding jobs reasonably, unemployment remains historically low, and wages continue to outpace inflation. That suggests labor markets are still tight, which is a stabilizing factor.

There are also two broader indicators worth watching, both of which suggest things are “okay” for now: bond yields haven’t inverted and the Fed is holding steady on interest rates. These might not mean much to the casual observer, so let’s break them down.

The Bond Market Says "Not a Recession—Yet"

The yield curve is one of the most closely watched predictors of recessions. Normally, longer-term bonds (like the 10-year Treasury) pay a higher interest rate than short-term bonds (like the 2-year). That’s because investors expect to be compensated for locking up their money for longer.

When the yield curve inverts—meaning short-term bonds pay more than long-term ones—it’s a warning sign that investors think the economy is heading into trouble. As of early March 2025, the spread between the 10-year and 2-year Treasury yields is still positive. That suggests investors aren’t yet pricing in an imminent downturn. If they were, we’d see more movement into long-term bonds as a haven.

The Fed’s "Wait and See" Approach

After cutting interest rates by 100 basis points last year, the Federal Open Market Committee (FOMC) has chosen to hold rates steady at 4.25%-4.50%. This tells us two things:

1. The Fed does not believe the economy is collapsing. If Powell & Co. thought a recession was imminent, they’d be slashing rates aggressively to stimulate demand.

2. Their main concern is still inflation. They might be more inclined to cut if inflation were completely under control. But holding steady suggests they think inflation risks remain and don’t want to ease too soon.

This is where the bigger risk comes in: Trade policy. The President’s recent tariffs on Canada, Mexico, and China have introduced new economic uncertainties. If these tariffs push prices higher, the Fed could find itself in a tough spot—forced to fight inflation while growth slows. The worst-case scenario? A stagflation-like environment, where inflation persists and the economy slows.

Bottom Line

The economy isn’t collapsing, but it’s not exactly roaring, either. The job market is holding up, but consumer spending is slowing. The yield curve isn’t flashing red, but growth estimates are coming down. The Fed is on pause, but it’s navigating a tricky balance between inflation and potential recession risks.

For now, we’re in a fragile equilibrium.

The question is: Which way does it tip next?