Shafakna – Business Insider published a report, in which it talked regarding the worst expectations for the year 2023; Former US Treasury Secretary Larry Summers said in February that the country’s central bank now finds itself in an “unfortunate situation”.
The site said in a report, translated by “Arabic 21”, that Summers refers to the waiting period between the seven interest rate increases that the Federal Reserve has implemented since January 2022, and the marked slowdown in inflation and Americans’ spending, but the majority of the pain caused by fighting inflation did not come. following actually.
The site stated that high rates made borrowing money more expensive, but there is also what economists call the “long and variable” delay, which is the period of time that separates the implementation of monetary policy, such as raising interest rates, and the emergence of results.
According to economists, it takes 12 months or more for higher interest rates to have a significant economic impact, which means that the new year may bring more hardships for homebuyers, workers and business owners. Borrowing money becomes more expensive, layoffs accelerate, and consumer spending slows.
Economist Luke Pardo said that the year 2022 was “the year of two stories. The overall economy was growing very quickly at the beginning of the year, but while the Federal Reserve began to calm the economy, we saw that reflected in some labor market numbers.” But Pardo notes that there are So many unknowns in terms of the next steps the Fed will take.
Higher prices and layoffs depend on the big question of 2023: What will the Fed do next?
When Federal Reserve Chairman Jerome Powell announced his latest rate hike in December, he implied that Americans would experience “some pain” as a result of his inflationary tactics, but did not say how bad that would be.
The site indicated that there is one thing that seems fairly certain, which is the expectation of more layoffs in the year 2023, and last December, the Federal Reserve expected that unemployment would rise to 4.6 percent by the end of next year, and these expectations might change depending on the situation. over the course of the year, but a rise in unemployment by regarding a full percentage point according to the Federal Reserve’s forecasts would cause regarding 1.5 million Americans to lose their jobs.
Moreover, according to the site, more consumers will begin to avoid large purchases such as buying a car or a home as the economy begins to respond to the effects of the Fed’s rate-raising and anti-inflation efforts.
The site pointed out that the state of uncertainty makes it difficult to predict exactly what Americans will feel as a result of the delayed results of this policy. Pardo said that a strong labor market at the end of 2022 is a good sign that mass layoffs are unlikely to happen in the new year.
The site added that the only thing Powell said with certainty is that raising interest rates will continue as long as inflation levels in the economy remain much higher than they were before the pandemic, but Powell also added that if low inflation levels continue, achieving a soft landing; Where the Fed fights inflation while avoiding a recession, it is still possible.
“There is a set of results that the Fed can provide,” Pardo said. He can deliver what we think is a hard landing, where he raises interest rates by a huge amount, people stop spending, and we go into a recession. Or he might offer a softer landing, but I don’t think the Fed will take more action to see that softer landing.” However; The Fed has projected that inflation will remain above pre-pandemic levels by the end of 2023.
The site said that the epidemic has greatly affected the US economy; As inflation hit 7.5 percent year-on-year in January, as the country entered its third year of fighting COVID-19, Americans were already feeling pressure on their wallets as prices rose beyond the 2 percent level of inflation that existed before the pandemic began. .
Because Americans will try to control their spending, companies will likely generate less revenue and as a result, they may have to lay off employees, raise the prices of their goods, or close their premises if they can’t make enough money to survive.
The site quoted Taylor Wallace, who owns a dog grooming facility, as saying that the Fed’s interest rate hike is already affecting his business expansion plans. And with nearly half of all Americans working in small businesses, financial hardship in this sector can take a huge toll on the overall workforce.
“Since June alone, rates are up regarding 3 percent, so capital has become more expensive for small businesses in general,” Wallace told Insider, concluding the report. I can’t say it had a direct and immediate impact, but that will start to materialize soon.”
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