Expectations have turned over and over about what the economy will look like during 2023, and central bankers, Wall Street economists and Biden administration officials are trying to anticipate what might await the United States in the economy in the new year, especially after a year in which the Federal Reserve raised interest rates at the fastest pace since 1980. To slow growth and bring those rapid price increases back under control, will the Fed's policies trigger a recession?
Or will the economy cool down gently, dampening high inflation in the process?
The answer to these questions is far from certain, Jenna Smyalik explained in an article for the New York Times, especially with patterns still out of control in large parts of the economy including housing, cars and the labor market. However, past experience is almost certainly a bad map.
The writer reviewed the statements of Jerome Powell, Chairman of the Federal Reserve, during a press conference last week, in which he said, "I don't think anyone knows whether we will face a recession or not, and if that happens, will it be a deep recession or not, this is unknown." ".
The author attributed the reasons for the Federal Reserve to reorient monetary policy to doubt about what is to come, noting that officials are now working to gradually raise borrowing costs, which gives them time to learn how their policies affect the economy and how much more is needed to ensure inflation returns to normal. slow and steady.
housing market
The pandemic era has upended the housing market;
The advent of the coronavirus has led urbanites to scramble for more space in suburban and small-town homes, a trend reinforced by lower mortgage rates.
Reopening from lockdown has spurred people back into the cities, helping to raise rents in metropolitan areas that account for much of the inflation, along with higher federal interest rates, which has contributed to sharply slowing home buying in many markets.
The supply of available apartments and homes is expected to increase in 2023 with the long-awaited completion of new residential buildings.
The writer reviewed the opinion of Igor Popov, chief economist at the site, where he said, "The framework that looks like in 2023 is that we will already enter the year in a demand-constrained environment, where we will see more apartments competing for fewer tenants."
Popov expected a slight growth in rents in 2023, but he said that expectations are uncertain and dependent on the state of the labor market, explaining that rents will decrease if unemployment rises, while if workers perform really well, rents may rise more quickly, according to the author.
The current lease contracts are still catching up with the high inflation rates that occurred.
Where tenants are renovating their homes at higher rates.
As for the owned housing market, which does not enter into inflation but is important to the pace of general economic growth, new home sales have fallen catastrophically with the rise in mortgage costs and the recent rise in prices, which has made buying a house out of the reach of many families.
The emergence of the Corona virus led to the rush of city dwellers to obtain more space in suburban and small-town homes (Shutterstock)
automotive sector
The auto market - the main driver of America's first inflationary revolution - is another economic puzzle.
Years of tight supply unleashed pent-up demand that spurred extraordinary behavior by consumers and businesses.
Used cars were particularly in short supply early in the pandemic but are finally becoming more widely available, and the wholesale prices that dealers pay to stock up on auto parts have fallen in recent months.
But car sellers are taking longer to pass these sharp declines in profit price on to consumers than many economists expected, as wholesale prices are down about 14.2% from last year, while consumer prices for used cars and trucks are down just 3.3%, many believe. Experts say this means larger cuts, but there is uncertainty about when and how much of the decline.
The new car market seems to be more exotic.
It is still in short supply amid a shortage of parts, although that has begun to change as supply chain problems ease and production recovers, but both dealers and car companies made big profits during the era of low supply and high price.
labor markets
Perhaps the most important economic puzzle is what will happen next in the labor market in America, as part of the problem is that it is not entirely clear what is happening in the labor market now, so most evidence indicates that employment was strong, job opportunities were plentiful, and wages were rising. At the fastest pace in decades, but there is a big difference between the different data results, as the Labor Department survey of households shows employment growth is much weaker than its survey on the number of employers, and adding to the confusion, recent research indicated that revisions can make today's employment growth It looks less lively.
According to the writer;
This confusion makes guessing what comes next much more difficult. If one agrees, like most economists, that the labor market is hot at the moment, it is clear that Fed policy is poised to cool it down, as the central bank raised interest rates from around zero to around 4.4. percent this year, and is expected to rise to 5.1% in 2023.
The moves are aimed at slowing employment and wage growth, because central bankers believe that inflation will remain high for many types of services if wage gains remain as strong as they are now.
But it is not clear how much the labor market needs to slow to bring wage gains back to the normal levels the Fed is looking for, and whether it can slow enough without plunging America into a painful recession.
Normally, when the unemployment rate rises by more than 0.5 percentage points—as the Fed predicts it will next year—the unemployment rate continues to rise, as the loss of economic momentum feeds on itself, and the country sinks into recession.