Forget recession — the U.S. is heading for a ‘slowcession’ that could last all year, Moody’s warns

The mainstream view on Wall Street is that as the Federal Reserve slashes interest rates to help cushion the blow for investors and consumers, the U.S. economy will likely enter a brief recession during the first half of 2023, but that it will be over long before year’s end.

Still, while Zandi believes the Fed’s most aggressive interest-rate hikes in decades will have a deleterious impact on GDP growth, he thinks a strong U.S. labor market and other factors relating to the consumer should help prevent an outright contraction in the economy.

“There is no doubt the economy will struggle in the coming year as the Fed works to rein in the high inflation, but the baseline outlook holds that the Fed will be able to accomplish this without precipitating a recession,” Zandi said in the note.

According to a set of forecasts, Zandi expects U.S. gross domestic product to grow by roughly 1% or less on a year-over-year basis during all four quarters in 2023.

Zandi isn’t alone in his view that the U.S. economy will evade a recession this year. Goldman Sachs Group chief economist Jan Hatzius has a similar outlook, as do other high-profile names on Wall Street.

What differentiates Zandi’s view is that he expects a significant amount of economic pain but believes it will arrive over a longer period, making it slightly easier for consumers and investors to cope, according to his note.

Fundamental to this outlook is the notion that the Fed will be able to back off its interest-rate hikes before it hammers the economy with another “policy mistake” like the one some believe it made when it delayed raising interest rates until 2022 based on the view that inflation was “transitory.”

READ MORE HERE