With economists having difficulty predicting when or even if a recession will hit, many Americans are convinced that it’s inevitable.[0] According to a new poll by Real Estate Witch, 75% of Americans worry that a recession will hit in 2023, while 69% say one is already here.[1]
Economists polled by the National Association for Business Economics found that 60% of them believe a recession will occur within the next 12 months.[2] The National Bureau of Economic Research (NBER), which is part of the Department of Commerce, defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”[3] This definition has three criteria that must be met to some degree: depth, diffusion, and duration.[0]
The destructive power of high inflation has prompted policymakers to use monetary policy tools, such as raising interest rates, to slow down economic growth and decrease demand for goods and services. An increase in interest rates beyond a certain point can cause an economic downturn, as businesses and individuals become less likely to invest or spend their money.[4]
The U.S. Federal Reserve has raised interest rates 4.5 percentage points since March 2022, and in February 2022, lifted rates by a quarter of a point, the smallest amount in 10 months.[5] This increase was the lowest rate hike since March 2022, and the dovish approach from the central banking authority corresponded with bullish momentum for the market.[5] However, new data signaled that inflation isn’t under control yet.[5]
In December, the Federal Reserve’s median prediction for the highest achievable “terminal rate” was estimated to be between 5 and 5.25 percent.[6] Seven officials, however, had the expectation that rates would increase even further.[6] Five Federal Reserve officials set the target range for the key interest rates at 5.25-5.5 percent, while two others voted in favor of raising it to 5.5-5.75 percent.[6]
High inflation has a ripple effect on the economy. As consumers are forced to spend more on necessities, they have less disposable income to spend on discretionary items, which can lead to a reduction in economic activity.[4] Research firm Morning Consult released poll results showing that 46% of Americans said they think the economy is currently in a recession.[7] 22% of respondents stated that they do not think that a recession has already arrived, but they do think that the nation will experience one within the upcoming year.[7]
0. “Part of a Cycle: A Recession Primer” TD Economics, 9 Mar. 2023, https://economics.td.com/ca-recession-primer
1. “Half of Americans Say They’d Lose Everything in a Recession: Here’s How To Be Prepared” GOBankingRates, 8 Mar. 2023, https://www.gobankingrates.com/money/economy/half-of-americans-lose-everything-in-recession-how-to-be-prepared/
2. “Are we in a recession? Will there be a downturn in 2023? Economists weigh in” msnNOW, 12 Mar. 2023, https://www.msn.com/en-us/money/markets/are-we-in-a-recession-will-there-be-a-downturn-in-2023-economists-weigh-in/ar-AA18xdJS
3. “EVAN GUIDO: A ‘rolling recession’ gaining speed among some economists” Sarasota Herald-Tribune, 6 Mar. 2023, https://www.heraldtribune.com/story/business/2023/03/06/evan-guido-a-rolling-recession-gaining-speed-among-some-economists/69948098007
4. “The Economy’s Inflationary Woes: A Recession Looms Ahead” Industry Leaders Magazine, 12 Mar. 2023, https://www.industryleadersmagazine.com/the-economys-inflationary-woes-a-recession-looms-ahead/
5. “1 Big Reason a Recession Could Actually Help the Stock Market in 2023” The Motley Fool, 5 Mar. 2023, https://www.fool.com/investing/2023/03/05/1-reason-recession-could-help-stocks-in-2023/
6. “The economy has avoided a recession so far — and it could be a nightmare for the Fed” Yahoo Life, 7 Mar. 2023, https://www.yahoo.com/lifestyle/economy-avoided-recession-far-could-175254818.html
7. “Are We in a Recession? 43% of Americans Think So” Money Talks News, 11 Mar. 2023, https://www.moneytalksnews.com/are-we-in-a-recession-43-of-americans-think-so/