International Monetary Fund managing director Kristalina Georgieva has said there's increasing evidence suggesting that the U.S. might avoid a full-blown recession.
Georgieva explained that the U.S. labor markets were resilient and that consumer demand was still strong despite the increase in interest rates. The managing director also said that the country's economy had shifted away from its over-consumption habits and started to grow more in services. During her first briefing for reporters in 2023, Georgieva said that even if the U.S. were to go into recession, it would still be mild.
In October, the IMF predicted that the interest rate in the U.S. would grow at a rate of one percent in 2023. On Tuesday, the World Bank also projected that the country's economy would grow at a rate of 0.5 percent.
Less than 50% chance of recession
John Woods, a senior economist at the Swiss bank, said the U.S. economy had a 40 percent chance of experiencing a recession in 2023. He noted that even though the market consensus is for a recession, he only expected "a recession with any meaningful probability."
Woods cited various factors, such as low unemployment and household balance sheets, as the reasons behind his optimism that the U.S. would avoid recession in 2023.
"Right now, unemployment is extremely low, household balance sheets in an absolute sense are extremely high, corporates are not particularly leveraged, and in those circumstances, it's hard to anticipate a recession certainly developing in the first half of this year," the Swiss bank economist said.
Despite the various factors that Woods cited, his market forecast was at odds with recent predictions by Wall Street analysts. Many of them predicted that the U.S. would enter a recession in 2023. Some major banks, such as Bank of America, Morgan Stanley and JPMorgan, also warned that the country's stock market could fall 20 percent.
The analysts' negative view of the U.S. economy stemmed from the Federal Reserve's monetary policy. Since last March, the central bank has increased its benchmark interest rate four times toward 4.5 percent.
Despite his insistence on not forecasting a recession in 2023, Woods warned that the Fed would continue raising interest rates in the first or two quarters of the year.
Everything depends on Fed
Despite the positive signs the economy is experiencing, such as the increasing number of jobs and the falling inflation rate, it still depends on the Fed's monetary policy to survive.
According to David Mericle of Goldman Sachs, a continued below-potential growth rate could help the labor market regain its equilibrium and reduce the pressure on prices and wages while preventing the unemployment rate from rising.
The Fed's decisions throughout the year will profoundly impact the country's economic activity. In December, the central bank increased its interest rates by 50 basis points, smaller than its previous 75 basis point increases, thanks to more promising inflation readings.
Per the minutes of the December meeting of the Federal Open Market Committee, the central bank would remain firm with its hawkish monetary policy this year. However, the Fed could respond positively to the release of the Consumer Price Index's (CPI) report by reducing the pace of its increases. Analysts at Goldman Sachs expected the Fed to increase its interest rates by 25 basis points throughout its first three meetings of 2023.