Close your eyes and imagine it is last Christmas. Maybe you have a mug of hot chocolate and you’re chatting about the new “Avatar” movie with your family. You might also be feeling a looming dread about a possible recession.
If you did have that dread last year, you’re likely pleasantly surprised that the economy didn’t actually buckle in 2023.
“Call it the Big Whiff – last year at this time, most economists, many journalists and a lot of regular folks felt certain that the U.S. was headed into recession,” due to the Federal Reserve Bank’s efforts to tame high inflation with interest rate hikes, said Axios this week. Instead, it said the U.S. economy failed to fail.
Back in February, one expert told Audacy “there’s a 100% chance of a recession at some point.”
However, that expert – Mark Hamrick, Washington Bureau chief and senior economic analyst for Bankrate.com – did note that the Fed’s interest rate hikes didn’t dent the job market like most expected. He said that “we live in remarkable times.”
When rapid interest rate hikes were used to bring down inflation in the 1970s, it resulted in a recession. Many thought this year would be the same.
“I always said there was a significant risk of recession, but no certainty of recession,” former Treasury Secretary Lawrence Summers told Axios. He also said that inflation has come down more than he expected.
Americans have also been busy spending, on everything from dining out and retail to concert tours. Taylor Swift’s Era’s tour even grossed more than $1.4 billion as it rolled through the U.S. this summer.
Still, inflation rose in November and half of Americans polled by Gallup last month said they thought the state of the economy was poor. Former President Donald Trump has used this dissatisfaction with increasing prices and interest rates making it harder to borrow money to his advantage as he gears up to possibly face off against President Joe Biden again in 2024.
In an op-ed published last month, Trump even blamed Biden and the economy for Americans not having children. Biden has pushed back on criticism about the economy and touted the success of his “Bidenomics” plan.
By this August, some experts were starting to predict a soft economic landing rather than a recession.
“So, the economy is actually growing reasonably – well, grew, at 2.6% – which is probably the best production in the developed world,” Guy Williams, president of Gulf Bank & Trust, told Audacy that month.
According to Axios, Claudia Sahm, a former Fed economist, was among a small group in her field who didn’t think that a recession was inevitable this year.
“I’m gonna take a victory lap on this one,” she said.
While 2023 exceeded economic expectations, challenges remain. For example, the inflation and interest rates that made Gallup poll participants pessimistic about the economy last month are still with us.
“Summers emphasizes that the battle against inflation is not over,” said Axios. “According to the latest data, the Consumer Price Index is still a percentage point above the Fed's 2% target.”
Summers said that a soft landing from inflation is possible, but that it is “premature” to declare victory considering the current inflation rate. In particular, the cost of housing is continuing to stress American households.
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