Economists say that there are highly likely chances that US Economy will go into recession in the upcoming year .It has slashed demand forecasts and trimmed the inflation projects in the wake of massive hike been preceded by an inverted yield curve- when short term rates exceed those of longer tenors-since 1960s.
Now cut to 2023, that is what is exactly happening with the treasury yield curve in the past month and half. Campbell Harvey added” My yield curve indicator has gone code red, and its 8 for 8 in forecasting recessions since 1968 – with no false alarms. I have reasons to believe , however, that it is flashing a false signal.”
The Wall Street Journal survey of 23 primary dealers, the large financial firms that do business directly with the Federal Reserve, found a majority expect a recession in the coming year. The top economic concerns include dwindled personal savings, the decline in the housing market, and tightening lending standards at many banks.
Rising prices have forced consumers to spend down savings, which soared during the COVID 19 pandemic . The fed rapidly raised interest rates in 2022 to fight inflation , increasing recession risks. The Consumer Price Index rose at the fastest rate in 40 earlier in 2022.
The personal savings rate dropped to 2.4 percent in percent in November, far below the pre-pandemic average of 8.8 percent in 2019. Higher interest rate rates have had the most dramatic impact on the housing market, which saw a plunge in sales activity in second half of last year.
Household wealth dropped another $400 billion in the third quarter , to $143 trillion , marking the third straight quarterly decline .Total household borrowing reached $16.51 trillion in the third quarter, $35 billion increase from the prior quarter and 8.3 percent jump from a year ago.
The 30 year fixed mortgage rate breached 7 percent in October for the first time since 2002 , more than doubling in the span of nine months.