With the Fed taking action to raise rates and choke off inflation, the nation’s top economists forecast that economic growth will slow to 1.6% this year and 1.5% in 2023, before rising to 2% in 2024, according to ABA’s Economic Advisory Committee. The committee—which is made up of 12 chief economists from some of the largest banks in North America—said it expects that the unemployment rate will decline to hold steady at 3.4% by the end of the year and into 2023. But while the committee’s baseline forecast avoids a recession, the EAC projected a 40% chance of recession in 2023, with the balance of risks to the downside.
“Unemployment remains low and job gains are expected to continue,” said EAC Chair Richard DeKaser, who is chief corporate economist at Wells Fargo. “Moreover, 2019, 2020 and 2021 were the highest three years on record for gains in inflation-adjusted wealth per household, which will provide a strong tailwind for the consumer economy.”
The committee forecast that resolution of supply chain issues and rate management by the Fed should allow for consumer price inflation to slow from 6.3% this year to 2.4% in 2023 and 2.2% in 2024, close to the Fed’s 2% target. The committee also expects the fed funds rate to reach 2.75% by the end of the year. “It looks like the Federal Reserve will successfully bring inflation down to more tolerable levels in the foreseeable future,” said DeKaser. “However, there are substantial risks to this outlook.”
The 30-year mortgage rate is expected to top out at 5.33% in the third quarter of 2023, according to the EAC forecast, which would in turn cool house price appreciation, with house price growth rates dropping out of double digits later this year and falling to 2.8% by the end of 2023.
