‘Recession is not inevitable’: White House economist Jared Bernstein on prospects for 2023

White House chief economist Jared Bernstein told Yahoo Finance this week that he’s optimistic the US economy can continue to grow next year, and remains encouraged by signs of lower inflation.

“A recession is not inevitable,” Bernstein said from his office in the old Executive Office Building overlooking the North Lawn of the White House. “I think there are reasons for optimism that the path to a consistent and stable transition is plausible and credible.”

Bernstein noted that recent data supports a potential path as the economy transitions to growth that is below last year’s levels but remains positive, while employment growth slows, in part through shrinking job vacancies although there continues to be strong job gains. This illustrates, in general, the much-talked-about “soft landing” scenario of Fed and Wall Street watchers.

He said, “You take the help needed out the window, not the workers walking out the store and that helps take some of the pressure off nominal wage growth.”

Bernstein suggested that the Fed’s forecasts for economic growth are consistent with the model it sees for below-trend GDP.

White House Council of Economic Advisers member Jared Bernstein speaks during a press conference at the White House in Washington, US, April 1, 2022. REUTERS/Kevin LaMarque

Economic growth should slow, in Bernstein’s view, which helps bridge the gap between supply and demand for labor, which helps slow nominal wage growth, which in turn slows down price growth.

The Fed said last week that it expects GDP to grow at just 0.5% next year before as inflation slows to 3.1%.

“The main goal is to maintain the progress we’ve made to date, particularly in the labor market, while reducing inflationary pressures,” Bernstein said.

The unemployment rate, in the Fed’s chart, is expected to rise to 4.6% by the end of next year, up from 3.7% as of November.

President Biden’s biggest economic priorities for the coming year, Bernstein said, include implementing key economic legislative packages passed this year: the infrastructure plan, the Inflation Reduction Act, and the CHIPS Act, which seeks to boost semiconductor manufacturing in the United States.

Bernstein said, “Not only do we think the economy can absorb what we’re trying to do here and stay on the expected inflation path, but we actually believe that with some of the headwinds in this economy, including the Fed’s hike in the cycle and other demand issues, these measures will provide some A Beneficial Tailwind for Working Americans.”

“I hope the peak is behind us.”

Bernstein told Yahoo Finance he feels good about the slowdown in inflation, pointing to the two percentage point drop in headline inflation on the consumer price index seen in recent months, from 9.1% in June to 7.1% as of November.

“I hope the peak is behind us,” Bernstein said, in President Biden’s formulation.

Bernstein added the caveat: “I am very cautious about calling out any kind of global peak [in inflation]. We’ve seen a fake head before. However, there are reasons to be confident that we have seen some positive momentum.”

He said prices could continue to fall due to a slowdown in commodity inflation, thanks to the untethering of supply chains and the faster pace at which goods are being shipped to shelves.

Bernstein added that by the second half of next year, declines in rental and housing prices will begin to show up in the inflation data, helping to put downward pressure on price increases. From there, Bernstein said he looks for a continued downturn in the labor market to eventually relieve wage pressure and lower inflation.

When it comes to inflation and Congress’ relationship with the Fed, Bernstein said he believes fiscal policy is a complementary task to monetary policy.

“This is not the time to fight the Fed,” he said.

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