Fed Cuts Growth Forecast; Sees Three Years Of Hardship

Fed Cuts Growth Forecast;

The new estimates of the Federal Reserve Bank of the United States (Fed) economists bring a change of scenery in terms of the economic developments of the next three years, particularly this year, changing the data for when the world’s largest economies, particularly the United States, will enter a recession. Until now, the baseline scenario expected that Europe and the United States will experience economic recession at separate times, but mostly in 2023, and primarily in the first half, as a result of aggressive interest rate hikes.

The same scenario predicted a drop in inflation and an economic rebound by the end of the year, developments that may be combined with the first interest rate cuts.

The minutes of the Fed’s most recent meeting, held in December, seem to contradict this notion, pointing to a different course for developments that, if followed, will force investment professionals to make fresh calculations and estimates. Fed experts predict the worst moment for the US economy will be near the end of 2024, more than a year later than current forecasts. Moody’s, for example, estimates that the American economy will hit rock bottom in the third quarter of 2023, with growth of only 0.8%.

Simultaneously, the Fed rules out any possibility of a rate drop in 2023, laying up a period in which consumers and companies will experience a recession but economic statistics will simply reflect low growth.

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The significant shift is primarily due to economic data from November and December, which suggest that the economy is holding up unexpectedly well, with robust strength in both consumption and financial conditions. The Federal Reserve of the United States now feels that the impacts of better-than-expected market performance and a weaker dollar have the potential to exceed the impact of higher interest rates in the medium run.

As a result, the US economy will not only not collapse in 2023, but may even avoid recession. But not forever, as the repercussions of monetary tightening will cause an even larger slowdown, if not a recession, in 2024. According to the Fed, 2023 will not be an impressive year for a large economic slowdown, and 2025 will likewise be marked by reduced long-term growth. In other words, Fed researchers foresee three years of economic misery, with very low growth rates and high prices.

Fed policymakers raise their prediction for structural inflation, which excludes volatile energy and food prices, to 3.5% for the entire year 2023, up from 3.1% in September. As a result, prices will stay high this year, which, along with the severe slowdown in the economy, will continue to shape an atmosphere of precision and real income decrease.

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