As we ease into a new year, uncertainty is high and there are challenges aplenty. Everywhere you look, somebody else is predicting a recession. Nonetheless, there are signals of improvement in key factors shaping potential economic growth. Let’s look at a few to keep an eye on in 2023.
Inflation just keeps sticking around. The Federal Reserve has indicated willingness to stay the course, pushing up interest rates and tightening policy. There are signs that the rate of price increases is diminishing but remains well above the current target level of 2%. Part of the problem now is that secondary effects such as wage increases are also contributing, and, though much of the pandemic largesse has been dissipated, trillions are still being spent by the federal government. The coming year will likely bring some ongoing relief, but a few more interest rate hikes are inevitable.
Other effects of higher interest rates are rippling through the housing and equities markets. Housing starts are dropping, and prices are falling significantly in some areas. Another contributing factor is changes in remote work patterns, with a number of companies asking employees to return to the office (thereby shifting location patterns and the resultant housing demand). Higher mortgage rates piled on to other shifts will cause notable declines in a few regions. In addition, last year was the worst for the stock market since the Great Recession (though the drop was notably larger in 2008).
