Brace for Recession Next Year. But the Outlook Isn’t All Doom and Gloom.

The Fed will keep fighting inflation, and the unemployment rate will rise. But there are positive trends on the horizon.

If 2022 was the year U.S. investors came around to the reality of entrenched inflation and a reactionary Federal Reserve, 2023 will be the year they learn to live with both. Neither is likely to fade anytime soon.

Next year could see a winding trek toward a mild recession in the second half, the result of the central bank’s quest to chill the labor market and rein in price growth. Economists expect that the Fed’s continued push to tighten monetary policy and cool consumer spending and business activity will begin to weigh on the labor market by the middle of the year, sparking widespread layoffs and a jump in the unemployment rate. The loss of income will slow consumer demand as households spend down excess savings and rack up credit-card debt.

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