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Home Economy

Bank economists see inflation moderating but divided on recession prospects

January 20, 2023
Reading Time: 1 min read
Consumers expect short-term inflation, bearish on home prices and spending

Weakening consumer and business spending, and improving supply chains, will support the Federal Reserve’s efforts to drive inflation lower this year and next toward its 2% target, according to the latest forecast of the American Banker Association’s Economic Advisory Committee released today. The committee, composed of 15 chief economists from some of North America’s largest banks, also expects stalling economic growth in 2023, followed by a modest recovery in 2024.

The weak outlook for consumer spending and business investment led the committee to forecast no growth in the economy this year, placing the nation on the edge of a mild recession. The committee was evenly divided on the prospect of a recession in 2023, with balanced upside versus downside risks. The group expects economic growth to recover to 1.6% next year.

A meaningful slowdown in consumer spending will contribute to disinflation, according to the committee. Consumer spending was the main driver of economic growth over the last three quarters, but the group expects it to slow sharply to 0.3% over the course of 2023.

“Household spending is close to stalling this year,” said Simona Mocuta, committee chair and managing director and chief economist at State Street Global Advisors. “Federal stimulus payments helped consumers withstand the pandemic-driven recession and build substantial savings. But much of the excess savings has been depleted, especially for lower-income households.”

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