Are we headed toward recession?

publishedabout 2 months ago
3 min read

Are we headed toward recession?

Welcome to Nonrival, the newsletter where readers make predictions.

How it works

  1. On Sundays, read the newsletter and make a forecast by clicking a link at the bottom.
  2. On Wednesdays, see what other readers predicted and how your forecast compares.
  3. Over time, you’ll get scores based on how accurate your forecasts are.

In this issue

  • Recession watch: Will the US economy grow in Q1 2023?
  • Stay tuned for something special next week.

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What a weird year. Here’s a stat from Morgan Stanley: 2022 was the only time in 150 years that the prices of both US stocks and long-term bonds fell more than 10%. It was a bad year for nearly everything. Will next year be any better?

The Federal Reserve has been raising interest rates rapidly since the spring, in an attempt to cool the economy and tame inflation. That kind of rapid rate hike is usually followed by a recession. But nothing about the past three years has been typical. And the case for avoiding a recession next year is essentially that the usual rules don’t apply.

This week we’re looking at the US economy’s prospects for 2023 and whether there will be a recession. The specific forecast is a bit more short-term:

  • Will the US economy grow in the first quarter of 2023?


The pandemic triggered a wave of inflation in the US, starting in the spring of 2021. Supply chain snarls, shifts in purchasing habits, workers’ retreat from the labor market, and stimulus checks all likely contributed. Russia’s invasion of Ukraine exacerbated the trend by raising prices for food and energy.

The Federal Reserve has raised interest rates 3.75 percentage points since March, in six separate rate hikes. The goal is to lower demand and cool the economy by making it more expensive to borrow money.

The pace of inflation appeared to slow in October and many of the underlying pandemic-related drivers, like the cost of shipping, have eased.

US GDP growth was negative in Q1 and Q2 of 2022 but rebounded to 2.9% in Q3. These numbers, like the one you’re forecasting, are annualized: They represent the growth for a given quarter, adjusted for inflation, if that pace were extended to an entire year.


“The Fed has delivered the fastest pace of policy tightening on record and now feels comfortable to begin slowing the pace of interest rate increases. We expect it to step down the pace to 50 basis points at its meeting later this month and then deliver a final hike in January to a peak rate of between 4.5 and 4.75%. But in order to keep inflation on a downward trajectory, the Fed will likely keep rates at that peak level for most of next year. This shift to a more cautious stance from the Fed we think will help the U.S. economy narrowly miss recession in 2023. And we think only in the back half of 2024 will the pace of growth pick back up as the Fed gradually reduces the policy rate back toward neutral, which is around 2.5%. Altogether, we forecast 2023 GDP growth of just 0.3% before rebounding modestly to 1.4% in 2024.” —Ellen Zentner, Morgan Stanely, Dec. 2022
“The U.S. experience in the 1970s and early 1980s underscores that the shock of central bank tightening to contain inflation can cause a jump in unemployment. This time could be different, in part because overheating in the job market has shown up since the pandemic as an unprecedented increase in job openings rather than in excessive employment.” —Goldman Sachs, Nov. 2022
“Inflation has evolved over the past several months—slowing overall, but also broadening into more persistent areas. In late 2021 and early 2022, inflation was mainly caused by supply issues pushing up core good prices. From there, the main driver shifted to energy. More recently, the inflationary trends in core goods and energy have reversed, and inflation has shifted into core services. Core service inflation, particularly rent, is closely related to personal income and wage growth, and is unlikely to dissipate without economic weakness.” —PitchBook, Nov. 2022


US recession risk in 2023:

The last several quarters of annualized GDP growth:

Estimates of US growth throughout 2023:


Will the US economy grow in Q1 of 2023?

Specifically: How likely is it that US annual real GDP growth rate for the first quarter of 2023 be positive?

​~10% chance​ ​​​​

​​​~30% chance​ ​​​​

​​​~50% chance​ ​​​

​​​​~70% chance​ ​​​​

​​​~90% chance​​​​

The fine print

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  • Deadline: Make a forecast by 9am ET Dec. 13.
  • Resolution: This question will resolve using quarterly data from the Bureau of Economic Analysis, expected April 2023.