Although 2022 has the economy ending on uncertain terms, the Federal Reserve continues its fight against inflation via increases in interest rates. The rise in interest rates has been on the fastest track since the 1980s. With prices remaining on the high end for consumers, there is the potential for a recession.
A poll by Bloomberg conducted between December 12 through December 16 of 38 economists indicates in 2023, the probability of a downturn escalated to 70 percent. November showed a 65 percent probability.
Chief economist for Comerica Bank, Bill Adams, said, “The U.S. economy will likely fall into a recession over the next year if it is not already in one.” “The silver lining is that the mismatches between supply and demand that have fueled historically high inflation should be much less of a problem by a year from now.”
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With seven interest rate hikes approved in 2022, policymakers have indicated the plan is to raise the rates in 2023 even higher and keep them elevated until 2024.
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Officials also forecast a slow rate of growth for the economy and a higher rate of unemployment in 2023. The Fed expects elevated unemployment in 2024 and 2025. The sustained unemployment equates to around 1.7 million in job losses.
Chief economist at RSM, Joe Brusuelas, said, “The Federal Reserve set the predicate for an eventual pause in its efforts to restore price stability in early 2023 as it indicated it intends to continue lifting rates into an economic slowdown that looks awfully close to the Fed forecasting a recession next year.” Brusuelas also noted the economic forecasts “come as close to the Fed forecasting a recession as one is ever likely to see.”
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Federal Reserve Chair Jerome Powell said, “To the extent we need to keep rates higher and keep them there for longer and inflation moves up higher and higher, I think that narrows the runway.” He continued to say, “But lower inflation readings, if they persist, in time could certainly make it more possible. I don’t think anyone knows whether we’re going to have a recession or not, and if we do, whether it’s going to be a deep one or not. It’s not knowable.”
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