The global economy is about to enter into recession in the year 2023, according to the expectations of economists, which are increasing increasingly and are heading toward a consensus on the economy’s performance in the coming period. Still, the debate in business circles quickly turned to the question of whether to enter in an economic recession would be inevitable or if it exists the Possibility of avoiding it if the financial and monetary authorities take certain measures.
“When you have high inflation and the Fed raises interest rates to combat it, that necessarily leads to deflation or a recession,” says Mark Zandi, chief economist at Moody’s Analytics.
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The report, published by the network American “CNBC” and seen by “Al Arabiya Net,” confirmed that Zandi belongs to a minority of economists who believe that the Federal Reserve can avoid the recession by raising interest rates for a limited period, and this avoids the economy crushes growth.
Despite that, Zandi himself still risks hitting the global economy with what he called a “fainting state,” underlining that everyone is talking about a recession and that “unlike what used to happen in the past.”
The US Federal Reserve previously helped stimulate lending by cutting interest rates a zero and increased market liquidity by adding trillions of dollars of assets to its balance sheet. Still, it returned and raised interest rates quickly from zero last March at a range of 4.25% to 4.5% by the end of 2022.
The Federal Reserve is now having a serious battle with inflation as expectations point to further interest rate hikes to reach around 5.1% by early 2023, and economists expect it can keep those rates elevated to control inflation.
Tom Simmons, a specialist economist in financial markets at Jefferies, said the global economy “is heading towards a classic recession.” He added, “The transmission mechanism that we will see operating first in early 2023, we will start to see some marginal pressure on corporate earnings. Once it starts to consolidate, they will take steps to cut their spending. The in first, we will see him reduce headcount. We will see that by mid-2023. “And that’s when we will see a significant slowdown in economic growth, and inflation will also decrease.
“I hope the next recession will be one short and shallow,” said Diane Swonk, chief economist at KPMG. She added, “The good news is, we should be in able to recover quickly. We have healthy balance sheets, and you can get a response to lower interest rates once the Fed starts to ease. Fed recessions are not fiscal recessions”.
The latest economic projections from the Fed show that the economy will grow at a rate of 0.5% in 2023, and no recession is expected.
It is unclear how long the policymakers will be able to keep interest rates at such high levels. Futures traders expect the Fed to start cutting interest rates by the end of 2023. The central bank’s projections show interest rate cuts starting in 2024.
Some economists believe the Fed will have to pull back from higher rates at some point due to the recession, but Simmons expects the recession to continue through the end of 2024 in a period of rising prices.”The Fed will reverse course in rate terms as things come down,” Simons said.”What’s not appreciated is that the Fed needs it to maintain its long-term credibility on inflation,” he added.”At the start of the year, we were getting 600,000 new jobs a month. Now we’re getting about 250,000″ says Zandi. And he adds: “I think we’ll see 100,000, and then next year it’ll go to zero…That’s not enough to cause a recession, but it’s enough to calm the job market” The irony here is that everyone expects a recession,” Zandi continues.
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