A “zero” economy?  No growth and rising unemployment forecast for 2023

A “zero” economy? No growth and rising unemployment forecast for 2023

The United States will experience “zero” growth in 2023 and tip over to the brink of recession, economists say, due to interest rate hikes orchestrated by the Federal Reserve to rein in high inflation.

Top economists at the American Bankers Association say the resulting slowdown is expected to trigger a sharp increase in layoffs and push the unemployment rate to nearly 5% over the next two years. A rapid increase in wages over the past year is also expected to wane.

However, the deteriorating economy and weaker labor market are also helping the Fed bring inflation down faster.

The ABA expects inflation to slow to 2.8% in 2023 and 2.2% in 2024 from an average rate of 6.4% the previous year, based on the consumer price index. consumption.

This would put the inflation rate close to the Fed’s 2% target, a bit faster than the central bank had expected.

“The wheels are in motion for a moderation in inflation to occur,” said Simona Mocuta, chair of the ABA’s economic advisory board and chief economist at State Street Global Advisors.

In this scenario, the Fed would actually start cutting interest rates before the end of 2023, ABA economists predicted, and help spur a modest recovery by 2024.

Senior Fed officials have warned that it is premature to say the tide has turned in its fight against inflation. They plan to raise a key short-term US interest rate a few times this year, push it above 5%, and leave it high for an extended period before reassessing the economy.

The inflation rate hit a 40-year high of 9.1% last summer, but has since slowed to 6.5%. However, this is still more than three times the price increase before the pandemic each year.

Still, not all ABA economists were so optimistic that the economy could ride out a recession and avoid rising unemployment.

“Others are more concerned about the ability to design this kind of Goldilocks outcome and maybe more pain in the labor market is needed to make that outcome possible on inflation,” Mocuta said.