Key takeaways
- Experts predict that the US economy could potentially face a recession in 2023.
- Some factors that could contribute to a recession include rising inflation. The potential for the Federal Reserve to raise interest rates, and the possibility of a stock market correction.
- David Rosenberg, a well-known economist, has also expressed concerns about the state of the US economy and has warned of a potential recession.
Will a US recession be inevitable?
Prominent economist David Rosenberg believes that the US recession will be inevitable, and he thinks that the idea of avoiding one is false. He compares this to the “global decoupling” idea during the 2008 financial crisis. He warned everyone on Twitter that a recession is coming and that those who think otherwise are lying.
Rosenberg disagreed with the notion that the Federal Reserve could control inflation without causing other problems. Some market commentators believed the US economy could avoid a recession and continue to grow, but Rosenberg disagreed.
Possible US Recession Triggers
Rosenberg urged people to pay attention to the leading indicators rather than blindly following those commentators. He believed that muted forecasts of future economic activity, shrinking US money supply, and lower interest rate expectations were signs of an impending recession. Rosenberg also pointed out that corporate earnings were already under pressure.
During the financial crisis, people believed in “global decoupling.” This idea said that foreign demand and investment would save US banks and finance companies. They believed it would compensate for the fall in domestic demand for goods and services. However, Rosenberg said that the economy has already “landed.”
He cited that the private sector’s need for goods and services has remained flat in Q4 2022.
Rosenberg believes that the US economy is heading toward a recession and has pointed out several signs to support his claim. He has noted that the forecasts for future economic activity are not looking good. The US money supply decreased in December. Investors expect lower interest rates in the upcoming months and years. Corporate earnings are also under pressure.
Rosenberg has further highlighted the latest Fed meeting’s minutes, which show that the US central bank is preparing for a downturn. The Federal Open Market Committee has mentioned four “recession” scenarios in the minutes. It was the highest number since June 2020, and there were no references to the “no landing” scenario.
Last year, inflation increased significantly to 9.1%. This caused the Federal Reserve to increase interest rates from almost zero to 4.5% to combat inflation. This move was meant to encourage people to save more and spend less. It would reduce the upward pressure on prices. However, increasing rates could also lead to less demand for goods and services, lower asset prices, and potentially cause a recession. Finally, this scenario can negatively impact investors’ portfolios.
Can the US avoid a recession in 2023?
Rosenberg doubts the possibility of the US economy escaping a recession despite the hope of a “no landing” scenario. He suggests that the Federal Reserve’s decision to raise interest rates to tackle inflation and banks tightening their lending requirements could impact the economy in the future. Rosenberg believes that these measures may have a delayed effect on the economy.
The Fed is also predicting that unemployment will go up, which is another sign of an upcoming recession. Rosenberg warned that investors should prepare for the worst. He said that the stock market could drop by almost a quarter, and house prices could also fall by 15% to 20%.
The Bottom Line
The possibility of a recession in the US in 2023 is a concern that cannot be ignored. While there are several indicators that suggest an economic downturn. It is important to remember that no one can accurately predict the future. It is crucial for individuals, businesses, and policymakers to be prepared for the potential challenges that a recession could bring. By staying informed, making smart financial decisions, and implementing effective policies, we can work towards minimizing the impact of a possible recession on the US economy and society.
