Data from a Wall Street Journal survey reveals that financial experts foresee an economic recession in 2023. Most point to the Federal Reserve as the main reason for the recession due to interest rate hikes to fight inflation.
Two-thirds of economists at 23 major institutions that do business with the Federal Reserve believe a recession will occur this year. Economists at two large firms believe there will be a recession in 2024.
Spending savings
The survey covered large companies in the financial sector and economists pointed out some of the reasons for their concern. Among them, that Americans are spending the money they saved during COVID-19, the housing market is in decline, and banks are tightening their lending standards. The savings people accumulated during the pandemic have fallen from $2.3 trillion to $1.2 trillion, according to Federal Reserve data.
The Journal reported that nearly 40% of U.S. banks tightened their lending standards in the fourth quarter of 2022. This could be a sign that banks are expecting a recession. As happened in the 2008 and 2020 recessions when banks tightened their lending standards, the Federal Reserve Bank of St. Louis reports.
Loss of employment
The survey also revealed that many economists expect unemployment in the country to rise from the 3.7% recorded in November 2022 to over 5%, which, while still historically low, would represent the loss of millions of jobs.
Most economists surveyed consider the Fed's tax hike the main reason for a possible economic downturn. Even so, Fed Chairman Jerome Powell has expressed his willingness to continue raising interest rates as much as necessary for inflation to reach the central bank's target of around 2%.
