Expect a US 'slowcession' rather than a recession in 2023 as the Fed will successfully control inflation, Moody's Analytics says
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The US economy will avoid a recession and instead face a 'slowcession,' according to Moody's Analytics.
A 'slowcession' is defined as a scenario when growth comes to near halt but doesn't slip into negative numbers.
Falling oil prices and healthy US financials are factors among many supporting Moody's view.
A rising chorus of big banks and high-profile economists have warned in recent weeks of a 2023 US recession, but those predictions may be a tad too pessimistic, according to Moody's Analytics.
The world's largest economy will avoid a recession this year, and instead face a 'slowcession' — a scenario where economic growth comes to a near standstill but never slips into reverse, according to Moody's, which coined the term.
"The U.S. economy will struggle in 2023 with halting growth and higher unemployment. Recession is a serious threat. But the Moody's Analytics baseline forecast—the most-likely outlook—holds that the economy will avoid a downturn. Call it a slowcession," analysts at the firm led by chief economist Mark Zandi wrote in a Tuesday note.
The reasoning behind their view tracks the Federal Reserve's efforts to cool inflation with its aggressive interest rate increases in what Zandi reckons will be a successful battle.
"The baseline outlook holds that the Fed will be able to accomplish this without precipitating a recession. That is, it will be able to raise rates high enough, fast enough to sufficiently quell the wage and price pressures, but not so high and fast that it knocks the wind out of the economy," Zandi said.
Inflation pressures have eased from 40-year highs seen earlier in 2022. In November, the Consumer Price Index rose 7.1%, coming in below economists expectations. Still, Wall Street has been sounding the alarm bells on an economic downturn over the coming year as the Fed pushes ahead with its rate hikes.
But according to Zandi, the financial health of American consumers, banks and businesses will hold out a recession from occurring.
"In our consumer-oriented economy, shoppers are the firewall between an economy in recession and an economy that skirts a downturn. While the firewall is sure to come under pressure, particularly as financially hard-pressed low-income households struggle, it should continue to hold," he said.
He also pointed to lower oil prices as a factor supporting the 'slowcession' scenario, as WTI crude drops near $80 a barrel down from its peak of more than $120 a barrel last June amid Russia's war with Ukraine.
"It is important not to be Pollyannish, but it is also important not to convince ourselves that a recession is inevitable. It is not," Zandi said.
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