A recession may be coming in the first quarter of 2023, according to forecasts by Bank of America (BofA) economists.
"We think the market could drop as low as 3,000 based on a panoply of indicators, given a host of risks we face as payback continues and a recession unfolds," Savita Subramanian, BofA head of US equity strategy, said in a statement.
There's no official definition of a recession, but many economists define it as a period of two consecutive quarters of negative economic growth or gross domestic product (GDP) decline – a drop that’s already been seen in 2022.
Many Americans also believe the U.S. is already in a recession. More than half or 56% of Americans believe the country is in a recession, according to a recent poll by YouGovAmerica and The Economist.
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Interest rates are expected to keep rising in 2023
In addition to recession fears, Americans may be affected by rising interest rates in 2023.
To battle high inflation, the Federal Reserve has increased interest rates six times so far in 2022. Most recently, the Fed increased the benchmark interest rate by 75 basis points for the fourth straight month in November.
The interest rate bump pushed the benchmark federal funds rate to a range of 3.75% to 4% or the highest rate since the 2008 global financial crisis.
Even if smaller interest rate hikes are seen in 2023, any kind of increase to the federal funds rate may impact the interest rates for financial products such as credit cards.
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Inflation can still be a challenge in 2023
In the midst of a potential recession, Americans may not see an end to higher-than-usual prices on basic goods and services in 2023. In fact, the Mortgage Bankers Association (MBA) believes inflation won't reach the target levels until 2024.
"We won’t be at the Fed’s inflation target until 2024," Mike Fratantoni, the MBA's chief economist and senior vice president, said at the Market Outlook session at the 2022 MBA Annual conference in Nashville.
The Consumer Price Index (CPI) increased by 7.7% year-over-year in October. This indicates a smaller increase from the 8.2% annual increase in September. However, the inflation rate remains close to the 9.1% 40-year high of earlier this year.
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