Bank of America’s chief economist warned on Sunday that 2023 would be a “difficult” one for Americans due to economic factors that he predicted could trigger a recession.
When asked by CBS’ Margaret Brennan on “Face the Nation” to give a forecast on the economy this year, Michael Gapen said he agreed with the notion that it could look and feel worse.
“I think we’re in a situation where the risk of recession is high, may not be a deep and prolonged one. But we’re in a situation where the economy has recovered very rapidly from- from COVID, and it’s come with a lot of inflation,” Gapen said. “We may be able to avoid it, but I would agree that the outlook by most people who sit in the position that I do think 2023 could be a difficult year for the U.S.”
Gapen cited interest rate hikes by the Federal Reserve in its attempt to slow inflation.
“More often than not, when we’re tightening policy, pushing interest rates higher to slow down the domestic economy and bring down inflationary pressures, that often means we get a period of higher unemployment rates, and what would be characterized as a recession,” Gaper explained.
But Gapen said it’s also possible to avoid a recession or be in one that doesn’t last long.
“In the past, we have been able to raise rates, cool inflation, without pushing the economy into a recession. In the mid 1990s we were able to do it. It’s just that the path to that is very tricky and sometimes involves a little more luck than it does skill,” Gapen said.
Gaper also said the U.S. economy is most likely past peak inflation, and the year-over-year inflation rate should continue to lower as it began doing late last year, but would take a while to take effect.
“The trajectory is a more favorable one. It will probably take two to three years to get inflation back down to levels that we knew prior to the pandemic,” he said.