President Trump promised that "jobs and factories will come roaring back into our country" as a result of his sweeping tariffs that have rocked global markets and sparked concerns that the United States is headed for a recession.
In making these policy changes, Trump has said his goal is for companies to bring production to the U.S., rather than importing expensive foreign goods which he says would bring down prices for American consumers in the long run. He also wants other countries to stop “cheating” the U.S. with trade imbalances.
However, Trump’s tariffs are “likely to move us away from our goals,” according to Jerome Powell, chair of the Federal Reserve, said.
"Unemployment is likely to go up as the economy slows in all likelihood and inflation is likely to go up as tariffs find their way and some part of those tariffs come to be paid by the public," Powell told the Economic Club of Chicago on April 16. "Surveys of households and businesses report a sharp decline in sentiment and elevated uncertainty about the [economic] outlook, largely reflecting trade policy concerns."
Allianz economists have also projected that unemployment will rise this year, but mass layoffs aren't expected. Yahoo News spoke with Gene McGovern, principal of McGovern Financial Advisors, about some steps you can take if you suspect your job will be downsized or you've been laid off ahead of a possible recession.
Consider an income-driven repayment plan for student loans
McGovern suggests that people consider enrolling in an income-driven repayment (IDR) plan. "For example, if your income falls because you get laid off, you can re-certify your income with your student loan provider at any time," he explained. "And if your income goes down, so can your student loan payments, so that's always a good way to protect yourself."
He recommends considering an IDR before considering forbearance. “[Forbearance] is where they stop requiring you to make payments for up to about 12 months or so. But on the other hand, that's not always a great option, because the interest still accrues.”
Take a loan from your 401(k) — if it’s absolutely necessary
“If you get laid off or you're in a bad place in a recession, you can take a loan from your 401(k) if you have one at work,” McGovern suggested. “Or you can even make a hardship withdrawal from your plan. I don't recommend either of those, but if you have to do one or the other, taking a loan is better because you're paying yourself back if you do.”
Take out Roth IRA contributions
McGovern says if you have a Roth IRA (individual retirement account), the money you contribute is after-tax dollars. “You can always take your Roth contributions out and not pay any taxes on them,” he explained. “You can't take out the earnings on the Roth, but you can take out your original contributions tax-free.”
Consider other sources of income
McGovern suggests being proactive if you suspect your job may be downsized soon. “Identify other possible income sources, like gig work, like an Uber or Lyft driver, or doing Taskrabbit kind of things, any kind of part-time work.”
Depending on the situation, people might be able to take in a roommate or turn their home into an Airbnb destination. “The point is to think you're not just limited to what you're earning at your current employer,” McGovern said.
Have an emergency fund
McGovern says this is just overall good financial planning, regardless of a possible recession. Having an emergency fund is “one of the absolute fundamental pieces of any good financial plan.”
“Be liquid, have some cash set aside for a rainy day,” he said. “Typically, you'll read that three to six months is what people like me recommend, but it really depends on your situation.”
For informational purposes only. Yahoo News does not offer individualized investment or financial advice specific to your unique needs or circumstances.
