Economic forecast: Recession all but certain in 2023

With roughly 11 weeks to go before their merger into Lake Ridge Bank is complete, State Bank of Cross Plains and Monona Bank hosted the former’s annual Business and Economic Forecast on Nov. 29 at the Overture Center, and the entrenched guest of honor, economist Elliot Eisenberg, explained the reasons why the U.S. economy is headed toward a recession in 2023.

From the Federal Reserve tightening the money supply with higher interest rates, to the resulting sharp downturn in the national housing market, to the inversion of the yield curve where short-term interest rates are higher than rates for long-term borrowing, to declining consumer confidence, an economic downturn is likely as the Fed tries to bring inflation, now running at 7.7% annually, down to its target of 2%.

“We’re not in a recession yet,” noted Eisenberg at the start of the program. “We’ll get there, but enjoy the lack of a recession for now.”

While most of the telltale economic indicators are heading south, Eisenberg believes the U.S. economy has reached peak inflation. In December, he expects the Fed to increase its federal funds rate, which influences rates charged for consumer and business loans, by another 50 basis points — a “Christmas present” after a series of 75-point increases — and gauge the impact on inflation before deciding what course to take in 2023.

If a downturn comes, most likely in the second half of 2023, Eisenberg expects a “garden variety” recession lasting 12–13 months, with a 2% rise in today’s low (3.7%) unemployment rate before the Fed starts lowering rates again.

Eisenberg says the higher interest rates, which are raised in part to reduce wage inflation, “are doing what they are supposed to do — make us feel bad.”