Since mid-summer — when the U.S. Federal Reserve began raising interest rates to fight inflation — the agency and experts knew it would have to take cautious steps to ease the inflationary economy into a “soft landing.” That is, the goal is to tighten the money supply and reduce inflation without triggering a recession.
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As we head into 2023, that scenario is looking less likely. Kay Daniel Neufeld, director and head of Forecasting at the Centre for Economics and Business Research, said in a report quoted by Bloomberg: “It’s likely that the world economy will face recession next year as a result of the rises in interest rates in response to higher inflation.”
But experts are gesturing toward multiple factors, working independently or in concert with each other, which could help prevent a worldwide recession in 2023.
Consumer Goods Prices
The increased price of goods, a result of high gas prices and struggling supply chains that haven’t recovered since the pandemic, is a key factor leading to inflation. However, reduced demand for retail goods — in light of recession fears — could lead to lower prices.
Home Prices
Pending home sales fell more than expected in November according to the National Association of Realtors (NAR) Pending Home Sales report, as cited by Reuters. This could lead to falling home prices. Although prices remained the same in October, Citi analysts told Investing.com that prices could fall 12% from peak 2022 levels. This, too, could help ease inflation.
Gas Prices and Transportation Costs
As supply chains stabilize, another factor could also drive down the price of consumer goods: the cost of oil and fuel at the pump. The International Business Times reported that oil prices have dropped from $122 per barrel over the summer to $80 as the year draws to a close. Likewise, gas prices are down from a record high of $5.01 ($5.81 for diesel) in June 2022 to the current average of $3.13 for regular unleaded and $4.67 for diesel.
Wage Growth
Rising wages, perhaps a result of the Great Resignation and the current labor shortage, have also contributed to inflation. “The labor market continues to be out of balance, with demand substantially exceeding the supply of available workers,” said Federal Reserve Chair Jerome Powell in a news conference detailed by MSN. “Wages are running… well above what would be consistent with 2% inflation.”
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Mark Zandi, chief economist at Moody Analytics, told MSN that falling inflation could help slow wage growth, which would encourage the Fed to slow interest rate hikes. Zandi said wage growth could fall from the current rate of 5.2% to 4% by the end of 2023. This could help the U.S. economy with the “soft landing” needed to avoid a recession.
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This article originally appeared on GOBankingRates.com: These 4 Economic Areas Could Be Curbed To Stop Recession, Experts Say
