ANN ARBOR (WWJ) – Economists at the University of Michigan have some good news and some bad news. The bad news: We can expect a recession in 2023.
The good news? It should be a mild one in Michigan, thanks to a strong auto sector.
U-M economist Gabe Ehrlich says the strong auto industry should keep Michigan from suffering the worst effects of the economic downturn.
"And one reason is that there are still pretty large backlogs of demand in the auto industry," Ehrlich said. "And that should support employment in the auto sector here in Michigan over the next couple of years. So even if the national economy is slowing down, we do expect Michigan actually to keep adding jobs, although at a much slower rate than it has been in the recent past."
Economists say inflation is a key driver of their annual U.S. Economic Outlook report, which was released Thursday at the university's 70th annual Economic Outlook Conference.
While the inflation rate came down slightly over the last couple months, the economists "expect monthly inflation to tick back up in the next few months."
They believe that means the Fed will have to keep raising the federal funds rate through the middle of 2023 and "it will likely take a mild recession to drive inflation down for good."
The economists then expect the Fed to hold the rate flat during the second half of 2023, as inflation "gradually falls and joblessness slowly rises."
By early 2024, they envision the Fed to start cutting rates again, which would help to stabilize the job market.
Erlich says the "stubborn" inflation should start coming down "in a durable and noticeable way" over the next couple years.
"We think the Federal Reserve is gonna keep raising interest rates and make sure it gets inflation back down closer to target," Ehrlich said. "We do expect inflation to come back down a lot closer to target over the next couple of years, just a little over 2% by 2024."
