A majority of United States economists see an overwhelming chance that the U.S. economy plunges into a recession in 2023 because of the Federal Reserve’s massive interest rate hikes, according to the latest reports.
The chance of an economic downturn in 2023 reached 70 percent in December, increasing from 65 percent in November, according to a Bloomberg monthly survey of economists.
The poll was conducted in early December this year and surveyed around 38 economists. The survey finds that economists see the median estimate for U.S. Gross Domestic Product (G.D.P.) as just 0.3 percent, according to the report by Bloomberg, including a 0.7 percent decline in the second quarter and flat patterns in the first and third quarters.
Consumer spending, which accounts for about two-thirds of total G.D.P., is predicted to grow little in the middle half of 2023. According to Comerica Bank chief economist Bill Adams, the U.S. economy is “facing big headwinds from surging interest rates, high inflation, the end of fiscal stimulus, and weak export markets abroad.”
Economists say the Federal Reserve has been raising interest rates quickly since the 1980s to fight inflation.
U.S. policymakers have approved several rate hikes, putting the federal funds rate into a range of 4.25 percent to 4.5 percent from near zero in March. While officials have signaled they could pause the rate hikes several months into the new year, they have also signaled a willingness for a desire for a higher peak interest rate that would constrain economic growth.
According to Fox Business, policymakers have also indicated that economic growth will slow sharply next year, and that unemployment will continue to increase to a rate of 4.6 percent as rate hikes bring the U.S. to the brink of a recession.
The Federal Reserve also expects the U.S. jobless rate to remain elevated in 2024 and 2025 as steeper rates continue to take effect by pushing up borrowing costs.
According to officials from Bank of America, Goldman Sachs, and Deutsche Bank, many firms predict a downturn next year, while some remain uncertain about its severity.
Federal Reserve Chair Jerome Powell pushed back against that expectation in his press conference last week, suggesting that lower inflation prints could boost the possibility of curbing inflation without flatlining growth.
With energy prices high and prices of everyday goods high for many families in America, many are hoping for lower inflation next year and for the economy to pick up in the coming months.