What Could Go Wrong for the Federal Reserve in 2023
The central bank faces three significant risks in its ongoing battle to get inflation back under control.
In some ways, the 2023 economic outlook for the US is locked in. The Federal Reserve’s goal is to push the rate of inflation back down to 2% over the next few years. It will do this by keeping monetary policy tight enough for long enough to restrain economic activity. This will eventually loosen up the labor market sufficiently to push wage inflation down to the 3% to 4% range consistent with their inflation objective.
Thus, many of the questions posed by market participants are about the margins. How high will the Fed have to raise interest rates? How long will they have to stay there? Will an economic slowdown suffice or will the US fall into recession?