(The Hill) – 2022 has been a rough and somewhat painful year for the US economy.
Years of stubbornly high inflation, rapid interest rate hikes, and war-induced energy shocks have weakened the US economy.The job market remains very strong, but many Economists say US likely to slip into recession at some point next year.
And even if the country avoids a recession, Americans will still be grappling with the unknown effects of rising prices, high interest rates and the Fed’s fight against inflation. Political conflicts over government funding, entitlement programs and the federal debt ceiling also risk further distressing the economy.
prepare for high inflation
Inflation has slowed significantly After hitting a 40-year high this summer, it brought some relief to cash-strapped shoppers. Easing supply chain problems, slowing consumer spending and lower fuel costs will make some commodities more affordable next year than they were last year.
Yet prices were still up 7.1% annually as of November, according to the Consumer Price Index (CPI), with inflation well above pre-pandemic standards.
Goldman Sachs economists believe commodity prices have fallen sufficiently from current levels to reach a negative We expect inflation to be achieved.Analysis.
But prices for many services, especially housing and health care, are likely to continue rising after surging through much of last year, they said.
“We expect a more limited decline in services, especially in core services. [inflation] 5% to a higher 4.5% by December 2023,” wrote the Goldman Sachs economist.
Federal Reserve Chairman Jerome Powell also warned that the U.S. is far from price stability and that a further fall in inflation in 2023 will remain unbearable for many households. .
“Inflation in services is not expected to fall so quickly, so we need to keep it at this level,” Powell said at a press conference earlier this month.
“We may need to raise interest rates to get where we want to go.”
Preparing for rising interest rates
Even if inflation continues to fall, the Federal Reserve will not stop raising rates early next year and has made it clear that it plans to keep raising rates for the foreseeable future.
Fed officials expect to raise the baseline rate range to 5-5.25% by the end of 2023, from the current range of 4.25-4.5%. Set early this month, according to their latest forecast. They also don’t expect to cut interest rates until 2024, but a sharp recession could force the Fed to change plans.
“We expect lower commodity-led inflation in 2023, [Fed] Chairman Powell’s statement was his belief that inflation is continuing to fall, and that’s the benchmark for the cut,” Goldman Sachs economists explained.
“But more than that, we remain skeptical. [Fed] Cut just to get back to neutral,” they wrote.
Job security is valuable in a recession
A historically strong job market has underpinned the strength of the US economy through high inflation, overturning previous forecasts of a slowdown. It also enabled millions of employed Americans to find new jobs. In many cases, there are better wages and career opportunities thanks to a glut of vacancies and a much smaller workforce.
Economists are increasingly worried that the recession could put thousands, if not millions, of Americans out of work next year. The Federal Reserve Board unemployment rises It will rise to 4.6% by the end of 2023.
“While the economy is not yet hit by a recession, growth has slowed sharply and is slower than third-quarter data suggests,” Scott Hoyt, senior director of Moody’s Analytics, said in an analysis last week. weak.
If the U.S. hits a recession in 2023, recent hires without seniority could be among the first to be laid off. Companies in industries hit hard by high interest rates could also face financial pressure, threaten your job in areas such as technology and real estate.
“I don’t think anyone knows if there will be a recession, and if so, if it will be severe. It’s just that we can’t know,” Powell said.
Don’t expect the stock market to soar
Stocks are set to close out 2022 with a plunge after setting new record highs towards the end of last year. The Dow Jones Industrial Average is down about 9% since his early 2022, while the Nasdaq Composite and S&P 500 Index are down 35% and 20% respectively over the past 12 months.
Continued high inflation, the outbreak of war in Ukraine, and rising interest rates have eroded market confidence and momentum from equities after recording double-digit percentage gains throughout the pandemic.
2023 may be a calm year, but many investment pundits expect the market to bounce somewhere between the all-time highs set in 2021 and the bottom of last year’s sharp decline.
“The market is still experiencing its ups and downs, even in relatively calm years. I believe we need to be prepared for potentially dangerous situations,” said Julian Timmer, Global Macro Director at Fidelity Management and Research.
Wall Street will watch when the Fed plans to stop raising rates and whether the economy will weaken enough to force the Fed to scale back its strategy. Battles over government funding and debt ceilings will also undermine investor confidence.
https://www.mystateline.com/news/five-ways-to-prepare-for-an-uncertain-2023-economy/ 5 ways to prepare for an uncertain economy in 2023