Focus shifts to 2023 – InsuranceNewsNet

2022 was a tough year. Amid a landscape of rising inflation and rising interest rates, American consumers and businesses have struggled to stay in balance.

Inflation was reported at 1.7% in February 2021, just below the Federal Reserve’s target rate of 2%. Today inflation is 7.7%. In order to get inflation under control, the Fed has continuously raised the reference interest rate for fed funds. When the fed funds rate increases, it usually results in higher interest rates on many forms of consumer debt. The Fed is hoping that higher borrowing costs will help reduce spending and help soothe rising prices. Since March, the fed funds rate has been raised from nearly 0% to 4%, the most aggressive pace of rate hikes since 1980.

In 2021, driven by tailwinds from America’s post-pandemic recovery, the economy grew at a whopping 5.9% rate. But when those tailwinds faded, the combined effects of high inflation and rising interest rates took a heavy toll on the economy. In the first and second quarters of this year, the annualized pace of economic growth was reported at -1.6% and -0.6%, respectively. In other words, the economy actually contracted and entered a technical recession in Q1 and Q2.

In the third quarter from July to September, the economy recovered and grew at an annual rate of 2.6%. This sudden return to growth, however, has done little to allay Wall Street fears that another recession is looming on the economy’s horizon. Citing a decade of high inflation and rising interest rates, economists at Bloomberg are now forecasting a 100 percent chance of a recession within the next 12 months. Likewise, S&P Global, the provider of the stock indexes S&P 500 and Dow Jones Industrial Average, has forecast a recession sometime in 2023.

Most recently, The Conference Board, a US-based provider of economic data and analysis, released its forecast for the US economy for 2023. It now projects a 96% chance of a recession in the next 12 months. Six months ago the probability was still 50%. But contrary to many other forecasts, The Conference Board argues that a broad economic downturn is already underway. It assumes that a recession has already set in in the current fourth quarter from October to December and will extend into the first half of 2023.

But it’s not just a bunch of data-crunching economists predicting turbulent times for the American economy. Many business leaders have also sounded alarm bells about the future prospects of the economy. According to a recent poll by The Conference Board, CEO confidence has fallen to its lowest level since the Great Recession of 2007-09.

In its survey of 130 CEOs between September 19 and October 8, 98% said they were preparing for a recession in the next 12 to 18 months. 81 percent stated that the economic situation had deteriorated in the last six months. In addition, 74% say the economy will deteriorate over the next six months. Despite a slight fall in inflation, 59% say input costs – such as materials, labor and factory overheads – have remained the same or even increased over the last three months.

The biggest obstacle to the economy in 2023 is likely to be inflation. Yes, inflation has fallen to 7.7% from its peak of 9.1% in June. But a quick return to the Fed’s 2% target rate is highly unrealistic. Instead, the path to 2% inflation is expected to be a very slow and gradual process.

Inflation is expected to remain at historically high levels well into 2024. And as long as inflation remains high, the Fed is likely to be reluctant to start cutting interest rates. Unfortunately, this will continue to be a brutal combination for the American economy.