Slowing economic growth should cool the labor market, reflected by an increasing unemployment rate, lower wage increases, and fewer job openings. The Federal Reserve expected the 2023 unemployment rate to increase to approximately 4.5% from the October 2022 rate of 3.7%. A little historical perspective can help provide context for understanding 2023. If unemployment rises from sub 4.0% levels in 2022 to 5% in 2023, that will equate to the unemployment rate in September 2016 when the U.S. was in the midst of its longest economic expansion. The federal funds rate is expected to be approximately 5% in early 2023, which would equate to rates that prevailed in 2006. In 2022, the annualized inflation of 9.1% in June was the highest inflation since 1981, before falling in October to 7.7%. If inflation could be reduced to 5% in 2023, that would put inflation approximately equal to the inflation rate in 1990; a decrease to 4% would approximately equal the 2008 rate. 2023 economic growth of 1% would match economic growth in 2001; growth of 1.5% would match economic growth in 2011. 2023 will see a continued battle against global inflation with the Federal Reserve likely to continue raising interest rates. Weak economic growth would also place downward pressure on energy prices through lower demand. Global interest rates will likely increase until a global 2% inflation rate target seems achievable. However, interest rates alone do not determine the level of inflation. Global unknowns remain, such as the effects of the Russia-Ukraine war on food and energy markets and lingering supply chain issues. Although weak economic growth or even a recession may occur in 2023, the Federal Reserve expects economic growth to rebound in 2024 as markets stabilize and inflationary expectations recede.
10
Center for Business and Economic Insight
Made with FlippingBook Learn more on our blog