Is the US economy heading towards recession in 2023? The majority of economists say yes

Economists see that there is a high chance that the US economy will plunge into recession next year as a result of the massive interest rate increases by the Federal Reserve Bank.

The probability of a downturn in 2023 rose to 70% in December, according to the latest monthly Bloomberg survey of economists, up from 65% in November. The poll, which was conducted from December 12 to 16, included 38 economists.

In total, economists see little 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 quarters. Consumer spending, which accounts for about two-thirds of total GDP, is expected to grow in the middle half of the year.

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

November inflation breakdown: Where are prices rising fastest?

the Federal Reserve It raised interest rates at its most aggressive pace since the 1980s in an effort to combat inflation. Policymakers have already approved seven consecutive interest rate increases, which puts the federal funds rate in a range of 4.25% to 4.5% from near zero in March.

Although officials indicated at the December meeting that they could hold off on raising interest rates for several months until 2023, they also indicated a desire for a higher interest rate that would further constrain economic growth.

Officials also noted that economic growth will slow sharply in the coming year and unemployment will rise dramatically to a rate of 4.6% as interest rate hikes will bring the US on edge. Recession. The Fed expects the unemployment rate to remain high in 2024 and 2025 as steep rates continue to hurt it through higher borrowing costs.

Inflation eased more than expected in November to 7.1%, but consumer prices remain high

With inflation still rising — prices are running at a pace three times higher than the pre-pandemic average — economists widely expect the Fed to trigger a recession as interest rates rise, which could eventually force consumers and businesses to cut back on spending.

Bank of America, Goldman Sachs and Deutsche Bank are among the big firms on Wall Street that predict a recession next year, although they are still not sure how severe it will be.

Marriner S. Eccles Federal Reserve Building in Washington, D.C., United States, on Wednesday, July 6, 2022. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)

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Still, Federal Reserve Chairman Jerome Powell He reversed that expectation during his post-meeting press conference last week, suggesting that lower inflation rates could boost prospects for a soft landing — the good point between curbing inflation without stabilizing growth.

“To the extent that we need to keep rates higher and keep them there longer and inflation moves higher and higher, I think that narrows the runway,” Powell told reporters. “But lower inflation readings, if sustained, in time could certainly make it possible. I don’t think anyone knows whether or not we’re going to have a recession, and if we do, whether it will be one or not. It’s unknown.”