GDP growth in Q4 2022 was reported at 2.9%. This is down slightly from his 3.2% growth in the third quarter. His first two quarters of 2022 had negative growth, so his annual growth was 2.1%. This is a significant drop from 2021 gross domestic product growth of 5.7%.
It looks like a recession is coming. Already many large companies are laying off workers in anticipation of the coming recession. The tech industry, which has been booming for most of the last decade, has seen massive layoffs. Amazon, Facebook, Google and IBM have announced layoffs of up to 5% of their workforce.
Much of what happens this year will depend on the Federal Reserve’s monetary policy. After a shockingly irresponsible expansionary policy in 2021 that was largely responsible for record-high inflation, the Fed has started tightening in his 2022.
For whatever mysterious reason, the Fed has kept interest rates near zero through 2021 and expanded the money supply rapidly. This, combined with his massive $3 trillion stimulus package from the federal government, led to inflation peaking at 9% annually in June 2022.
The Fed finally reversed its monetary policy completely last June, aggressively raising interest rates. The Federal Funds Rate is now up from near zero in 2021 to nearly 5%. The Fed may meet again next week and raise interest rates by at least another 50 basis points.
Looking ahead, the Fed is expected to raise rates by two to three times by midyear. This will increase the federal funds rate by at least 6%. At this level, many economists believe inflation should eventually be raised to a more acceptable level. The Fed wants the CPI to drop to his 3% range.
That probably won’t happen this year. Annual inflation has fallen to 6.5% from its 9% peak in June last year, but inflationary pressures are building. Much of the lower inflation was due to lower energy prices. The main reason these prices fell was because China was in recession caused by her COVID lockdown. China is the world’s second largest economy, so the economic downturn has reduced energy demand.
China is now recovering as it lifts its lockdown and reopens its factories. Increasing global demand and rising prices for energy. Oil prices have risen nearly $10 a barrel since the beginning of the year. Domestic gasoline prices are rising. Gasoline prices nationwide rose 12 cents a gallon last week.
Food prices also continue to rise. However, new and used car prices are stable. House prices and rents are also seeing lower inflation. This was expected as a significant rise in interest rates reduced demand for interest rate sensitive commodities such as cars and homes.
Inflation risks worsening if the US Federal Reserve (Fed) does not soften its position and raise interest rates later this year. On the other hand, if the Fed remains aggressive and continues to raise rates rapidly, the potential recession will get worse. Lowering inflation is now the Fed’s top priority, according to Fed Chairman Jerome Powell, and if Fed policymakers make a mistake they’re in favor of excessive tightening.
The federal government continues to run huge spending deficits projected to exceed $1 trillion annually over the next decade. The only way that won’t happen is if Congress can cut government spending. I think we have to increase our spending.
The House believes that spending on social programs is already sufficient and that the impact of human activity on climate change is minimal. So the House wants to cut spending to reduce this huge deficit problem.
Taking all this into account, GDP growth in 2023 will likely be lower than the 2.1% recorded in 2022. It can get even worse. It can be negative during the year.
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Michael Basler He is a public policy analyst and professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written editorial columns for major newspapers for over 35 years.
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