{"id":32315,"date":"2022-12-19T16:35:00","date_gmt":"2022-12-19T16:35:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=32315"},"modified":"2022-12-20T16:17:33","modified_gmt":"2022-12-20T16:17:33","slug":"inflation-unemployment-the-housing-crisis-and-a-possible-recession-two-economists-forecast-whats-ahead-in-2023","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/inflation-unemployment-the-housing-crisis-and-a-possible-recession-two-economists-forecast-whats-ahead-in-2023\/","title":{"rendered":"Inflation, unemployment, the housing crisis and a possible recession: Two economists forecast what\u2019s ahead in\u00a02023"},"content":{"rendered":"\n

D. Brian Blank<\/a>, Mississippi State University<\/a><\/em> and Rodney Ramcharan<\/a>, University of Southern California<\/a><\/em><\/p>\n\n\n\n

With the current U.S. inflation rate at 7.1%<\/a>, interest rates rising<\/a> and housing costs up<\/a>, many Americans are wondering if a recession is looming.<\/em><\/p>\n\n\n\n

Two economists discussed that and more in a recent wide-ranging and exclusive interview for The Conversation.<\/em> Brian Blank is a finance professor at Mississippi State University<\/a> who specializes in the study of corporations and how they respond to economic downturns. Rodney Ramcharan is an economist at the University of Southern California<\/a> who previously held posts with the Federal Reserve and the International Monetary Fund.<\/em><\/p>\n\n\n\n

Both were interviewed by Bryan Keogh, deputy managing editor and senior editor of economy and business for The Conversation.<\/em><\/p>\n\n\n\n

Below are some highlights from the discussion. Answers have been edited for brevity and clarity.<\/em> https:\/\/www.youtube.com\/embed\/M-UfSnXu3k8?wmode=transparent&start=0 Brian Blank and Rodney Ramcharan talk about the economic outlook for 2023.<\/p>\n\n\n\n

Are we headed for a recession in 2023?<\/strong><\/p>\n\n\n\n

Brian Blank:<\/strong> The consensus view among most forecasters is that there is a recession coming at some point, maybe in the middle of next year<\/a>. I\u2019m a little bit more optimistic than that consensus.<\/p>\n\n\n\n

People have been calling for a recession for months now, and this seems to be the most anticipated recession on record. I think that it could still be a ways off. Consumer balance sheets<\/a> are still relatively strong, stronger than we\u2019ve seen them for most periods.<\/p>\n\n\n\n

I think that the labor market is going to remain hotter than people have expected. Right now, over the last eight months, the labor market has added more jobs than anticipated, which is one of the strongest streaks on record<\/a>. And I think that until consumer balance sheets weaken considerably, we can expect consumer spending, which is the largest part of the economy, to continue to grow quickly.<\/p>\n\n\n\n

[But this] doesn\u2019t mean that a recession is not coming. There\u2019s always a recession somewhere down the road.<\/p>\n\n\n\n

Rodney Ramcharan:<\/strong> Indeed, yes, there\u2019s a likelihood that the economy is going to contract in the next nine months. The president of the New York Fed expects the unemployment rate to go up from 3.5% currently to somewhere between 4% to 5% in the next year<\/a>. And I think that will be consistent with a recession.<\/p>\n\n\n\n

In terms of how much worse it can be beyond that, it\u2019s going to depend on a number of things. It could depend on whether the Fed is going to accept a higher inflation rate over the medium term or whether it\u2019s really committed to getting the inflation rate down to the 2% rate. So I think that\u2019s the trade-off.<\/p>\n\n\n\n

Will unemployment go up?<\/strong><\/p>\n\n\n\n

Blank:<\/strong> [Unemployment] hasn\u2019t risen much, and maybe it\u2019ll pick up to somewhere close to 4%. Many are expecting something like four and a half percent. And I think that\u2019s certainly possible. And I think that we can see small upticks in the coming months.<\/p>\n\n\n\n

But I don\u2019t think it\u2019s going to rise as quickly as some people are expecting, in part because what we\u2019ve seen so far is a lack of labor force participation. Until more people enter the labor market, I think there are going to be plenty of jobs to go around.<\/p>\n\n\n\n

What is your outlook on interest rates?<\/strong><\/p>\n\n\n\n

Ramcharan:<\/strong> As people find it more and more difficult to find jobs, or to get jobs as they begin to lose jobs, I think that\u2019s going to dampen spending. And we\u2019re seeing that now as the cost of borrowing has gone up sharply, and the Fed is expecting that.<\/p>\n\n\n\n

The expectation is the federal funds rate will go up to 5% by next year<\/a>. If you tack on another couple of points, because of the risk involved, then the cost to borrow to buy a home could potentially get up to 8% for some people. And that could be very expensive.<\/p>\n\n\n\n

And the flip side of this for businesses is there\u2019s potentially going to be a slowdown in cash flow. If consumers are not spending, then the revenues that businesses depend on to make investments might not be there.<\/p>\n\n\n\n

The additional piece in this puzzle is what the banks will then do. I think banks are going to begin to curtail the extension of credit<\/a>. So not only will interest rates go up for the typical consumer and the typical business, it\u2019s also likely that they are more likely to experience denial of credit, and so that should together begin to slow spending quite a bit.<\/p>\n\n\n\n

After massive increases in housing prices, what caused them to suddenly drop?<\/strong><\/p>\n\n\n\n

Ramcharan:<\/strong> As the Fed lowered interest rates, there was a massive shift among the population for various reasons. They decided that housing was the right investment or the right thing. And so when 50 million people all collectively decide to buy homes, the supply of homes is reasonably constrained in the short run. And so that led to this massive increase in house prices and in rents.<\/p>\n\n\n\n

In the last three months, the housing market has cooled sharply<\/a>. We\u2019re now seeing house prices beginning to fall. I would imagine, going forward, the housing market cooling is going to be a major driver behind the slowdown in the inflation rate and in real estate investment trusts<\/a>. So that\u2019s positive.<\/p>\n\n\n\n

Our recent election just changed the composition of Congress. How will that affect the economy?<\/strong><\/p>\n\n\n\n

Blank:<\/strong> Certainly, when we have a divided Congress, we\u2019re less likely to see decisions made that involve passing legislation that might support the economy. And I think it\u2019s likely the Republican House is going to become a little bit more conservative with spending<\/a>.<\/p>\n\n\n\n

And so if we do start to see a downturn, I think you\u2019re less likely to see legislation that might help support an economy that could be in need of it. That is going to make the job of the Federal Reserve more important.<\/p>\n\n\n\n

How certain are these predictions?<\/strong><\/p>\n\n\n\n

Ramcharan:<\/strong> I just want to be careful here and let your viewers know that we\u2019re making these statements based on theory, because the inflation that we\u2019re experiencing now comes about from a pandemic, and there really is no evidence, there\u2019s no data available, that people can look to to say, \u201cWhat happens to an economy after a pandemic?\u201d That data does not exist.<\/p>\n\n\n\n

So we\u2019re trying to piece together the data we do have with the theories we do have, but there\u2019s a huge band of uncertainty about what\u2019s going to happen.<\/p>\n\n\n\n

Watch the full interview here<\/a>.<\/em><\/p>\n\n\n\n

D. Brian Blank<\/a>, Assistant Professor of Finance, Mississippi State University<\/a><\/em> and Rodney Ramcharan<\/a>, Professor of Finance and Business Economics, University of Southern California<\/a><\/em><\/p>\n\n\n\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

D. Brian Blank, Mississippi State University and Rodney Ramcharan, University of Southern California With the current U.S. inflation rate at 7.1%, interest rates rising and housing costs up, many Americans are wondering if a recession is looming. Two economists discussed that and more in a recent wide-ranging and exclusive interview for The Conversation. Brian Blank […]<\/p>\n","protected":false},"author":44,"featured_media":32316,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5,277],"tags":[13157,801,4213,7751,3371,350,1795,13156,677,1797,1580,348],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32315"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=32315"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32315\/revisions"}],"predecessor-version":[{"id":32317,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32315\/revisions\/32317"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/32316"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=32315"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=32315"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=32315"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}