Is the US economy headed for a recession in 2023? Most economists say yes.

Economists see an overwhelming possibility that the The US economy plunges into a recession next year as a result of the Federal Reserve’s massive interest rate hikes.

The probability of a recession in 2023 increased to 70% in December, according to the latest Bloomberg monthly survey of economists, up from 65% in November. The survey, conducted between December 12 and 16, surveyed 38 economists.

All told, economists see paltry growth next year: the median estimate for US gross domestic product is just 0.3%, according to the survey, including a 0.7% decline in the second quarter and flat readings in the first and third trimesters. Consumer spending, which accounts for around two-thirds of total GDP, is expected to barely grow in the middle of the year.

“The US economy is facing major headwinds from rising interest rates, high inflation, the end of fiscal stimulus and weak export markets abroad,” the chief economist told Bloomberg. of Comerica Bank, Bill Adams.

NOVEMBER INFLATION BREAKDOWN: WHERE ARE PRICES RISING THE FASTER?

Jerome Powell, Chairman of the Federal Reserve

Federal Reserve Chairman Jerome Powell speaks during a news conference on interest rates, the economy, and monetary policy measures, at the Federal Reserve Building in Washington, DC on June 15, 2022. (Photo by OLIVIER DOULIERY/AFP via Getty Images/Getty Images)

The Federal Reserve it has been raising interest rates at the most aggressive pace since the 1980s in an attempt to combat inflation. Policymakers have already approved seven consecutive rate hikes, putting the federal funds rate in a range of 4.25% to 4.5% from near zero in March.

Although officials signaled in their December meeting that they could stop rate hikes several months after 2023, they also signaled an appetite for a higher interest rate cap that would further constrain economic growth.

Officials also indicated that economic growth will slow sharply next year and unemployment will rise substantially to a rate of 4.6% as rate hikes bring the US to the brink of collapse. recession. The Fed expects the unemployment rate to remain high in 2024 and 2025, as higher rates continue to take their toll by increasing borrowing costs.

INFLATION DECREASES MORE THAN EXPECTED IN NOVEMBER TO 7.1%, BUT CONSUMER PRICES REMAIN HIGH

With inflation remaining stubbornly high (prices are running at about three times their pre-pandemic average), economists expect the Federal Reserve to trigger a recession with higher interest rates, which could force consumers and ultimately businesses to reduce spending.

Bank of America, Goldman Sachs and Deutsche Bank are among the top Wall Street firms forecasting a recession next year, though they remain unsure of its severity.

Federal Reserve

The Marriner S. Eccles Federal Reserve Building in Washington, DC, USA, on Wednesday, July 6, 2022. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)

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Still, Fed Chairman Jerome Powell He pushed back on that expectation during his post-meeting news conference last week, suggesting that lower inflation records could increase the odds of a soft landing, the sweet spot between curbing inflation without stalling growth.

“To the extent that we need to keep rates higher and keep them there longer and inflation goes higher and higher, I think that narrows the path,” Powell told reporters. “But lower inflation readings, if they persist, could certainly make that more likely over time. I don’t think anyone knows if we’re going to have a recession or not, and if we do, if it’s going to be deep.” one or not It cannot be known.”

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