As published in

By Jeanette Garretty, Chief Economist

Jan 1, 2023 – The last half-decade has seemed to have a certain “rush-to-get-there” quality, exemplified by high-tech unicorns, COVID frustrations, cryptocurrency dreams and Federal Reserve monetary policy. Towards the end of 2022, a change appeared to be in the offing, and 2023 is likely to be a continuation of an emerging story of careful consumers, good business governance and traditional economic fundamentals. As such, 2023 may witness the true beginnings of the next long US business expansion and a nascent economic recovery in other major economies.

But first, a certain amount of dues are expected to be paid. Specifically, considering the historical data documenting lags between monetary policy changes and economic activity, the sharp rise in interest rates across 2022 which, for example, has served to place the US Fed Funds rate close to 5% at the start of 2023, is likely to have a negative effect on economic growth playing out in the first half of the year. Global housing markets started to take the first hits from high-interest rates in the second half of 2022, but the pain is forecast to continue well into 2023. At the same time, elevated borrowing costs are likely to really evidence themselves in the 2023 operating plans for businesses worldwide, with the associated curtailment of capital spending mitigated to a certain degree by the increasingly pressing need to raise business productivity in the face of high labor costs.

Source: Charles Schwab, Bloomberg, Federal Funds Target Rate – Upper Bound (FDTR Index), using monthly data as of 11/2/2022.

The global inflationary pressures that established monetary policy tightening as the number one story of 2022 are not expected to subside substantially until mid-year 2023, and even then, probably will be threatening enough to keep relatively high-interest rates in place throughout the year. The United States is better positioned than Europe and Britain to see a gradual decline in inflation rates, given the earlier start to Federal Reserve tightening and lesser dependence on now-costly foreign supplies of oil and gas. Yet the fundamental problem for all developed economies (and even some developing economies) – diminished labor force growth—seems to be putting a near-term floor on how fast and far inflation can decelerate. Labor force management and the implications for productivity growth are forecasted to be as much of a 2023 economic growth story as monetary policy, energy reliability, or global trade tensions.

If there is to be a US recession in this outlook, the higher odds skew to the first half of 2023, precipitated by a rise in the unemployment rate and a resulting weakening of consumer spending. The US Federal Reserve probably would stop hiking interest rates after February, but not lower interest rates in the face of still-too-high inflation. With supply-chain bottlenecks considerably reduced in 2023, the economic fundamentals and their prospects should be easier to ascertain, however, leading to the greatest economic positive of 2023: improved visibility.

For the policymaker, the business or the individual attempting intelligent near and longer-term planning, 2023 should be a much easier environment than 2022. A recession, now long-anticipated by many, does not change this outlook. And the adjustment to higher interest rates should be relatively complete by mid-year. Economic shocks, internal and external, were the hallmark of the just completed year 2022. Grinding work towards manageable, non-inflationary economic growth and business profitability in a newly-uncertain world is forecast to be the distinguishing feature of 2023.

Jeanette Garretty is Chief Economist of Robertson Stephens Wealth Management, LLC, a wealth management firm striving to provide comprehensive and innovative investment solutions and wealth strategies to its clients through an intelligent digital platform.  Investing entails risks, including possible loss of principal. Additional important information available at

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