U-M economists say rising rates will lead to a mild recession in 2023 – Detroit Free Press

by | Nov 17, 2022 | Financial

University of Michigan economists Thursday said a mild recession is likely ahead in 2023, as the Federal Reserve continues to raise interest rates to try to cool down inflation.The Federal Reserve, which has been aggressively raising rates this year, is “prepared to tolerate a mild recession” to combat rising prices, according to the economic outlook by the U-M Research Seminar in Quantitative Economics. Inflation is expected to “tick back up” in the next few months. The Fed is expected to keep increasing interest rates through mid-2023. “And it will likely take a mild recession to drive inflation down for good,” the report noted.”We think the current momentum in the labor market and consumption spending is strong enough to keep the economy from turning over for a few quarters,” said Daniil Manaenkov, U.S. forecast lead at U-M’s Research Seminar in Quantitative Economics.Mortgage rates have soared significantly, though, leading to a dramatic, troubling fallout in the housing market. The U-M report refers to a “nuclear winter in housing.””After a two-year period of eye-popping increases in house prices,” the report stated, “the housing market appears to have run into a brick wall.”Mortgage purchase applications tumbled by 45% from early 2022. The University of Michigan Survey of Consumers’ sentiment index indicated that conditions for buying a home have fallen to their lowest reading since the survey’s inception in 1951.The average 30-year m …

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