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Modest downturn projected for 2023 as Fed tightening tamps down activity

November 2, 2022

Current Trends

Growth readings continue to broadly weaken as another hot inflation report lifted expectations for further Fed tightening. Retail spending stagnated over the third quarter in response to sharply rising costs, while much higher mortgage rates continue to batter the housing market. Business sector growth remains in expansion, but investment and hiring trends are weakening as recession concerns build. Long-term interest rates continued their steep ascent into October, but the yield curve is flashing a recession warning — contributing to the dour outlook from investors with most equity market indices near year-lows.

Neutral current scorecard for October.Negative future scorecard for October.

Future Outlook

A recession call for 2023 is gaining broader consensus as economic activity is expected to weaken further under the weight of high inflation and Fed tightening. The timing of a potential downturn remains uncertain, but recessionary conditions with job losses and reduced spending should prevail within the next 12 months. But this recession is expected to be shorter and more modest, even with Fed stimulus support likely delayed by still above-trend price growth. Fed easing in 2024 and a more typical pace of inflation should shift the economy into recovery mode.

Citations/Disclaimers

  • The information in this report is provided by Nationwide Economics and is general in nature and not intended as investment or economic advice, or a recommendation to buy or sell any security or adopt any investment strategy. Additionally, it does not take into account any specific investment objectives, tax and financial condition or particular needs of any specific person.

    The economic and market forecasts reflect our opinion as of the date of this report and are subject to change without notice. These forecasts show a broad range of possible outcomes. Because they are subject to high levels of uncertainty, they will not reflect actual performance. We obtained certain information from sources deemed reliable, but we do not guarantee its accuracy, completeness or fairness. Nationwide, the Nationwide N and Eagle, and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2022 Nationwide