While certain outlets might suggest that the U.S. economy is near a recession, experts say that 2023 will be the year we truly feel the effects of inflation and interest rate hikes.
The odds of a recession within the next year are rising daily, says a recent Bloomberg survey of 37 economists. Currently, the experts have the likelihood pegged at 30% ¬– more than double the average likelihood and double the rate from three months ago. The impending recession is due to higher-than-normal interest rate hikes, which have been implemented to control inflation. However, inflation is still much higher than the Federal Reserve target of 2%. In April 2022, the Fed reported that inflation was as high as 8.3% year-over-year.
The Fed has indicated that interest rate hikes will continue for the foreseeable future; there have already been two in March and May, but experts anticipate that five more will follow this year alone. With interest rates higher, spending will likely slow, and borrowing will become more costly for small businesses and consumers alike. If GDP growth slows, it could be indicative of a shrinking economy, perhaps due to these measures that are intended to be preventative.
“There’s a very, very high risk factor,” Lloyd Blankfein, Goldman Sachs Chairman, told CNBC. “But the Federal Reserve has powerful tools, and a recession is not baked in the cake.”
These tools, such as raising interest rates, “cool off growth,” Gus Faucher, a Chief Economist at PNC Financial Services Group, told CNBC. He added that the Fed’s attempt to mitigate inflation can end up being a slippery slope, and if the central bank raises rates too much, that can tip the economy over into a recession. Faucher says that 2023 and 2024 are concerning years, as consumers will be feeling the aftereffects of such tremendous rate hikes.