PIIE nonresident senior fellow and Harvard professor Karen Dynan, who led the forecast, projected that U.S. economy will see a 0.5-percent contraction in 2023, with stalled growth giving way to downturn.
Cumulatively, the downward revisions to the forecast put the projected level of U.S. GDP in 2023 more than 3 percentage points below the level she projected in April, she noted.
Dynan, former assistant secretary for economic policy and chief economist at the U.S. Treasury Department, also projected that core U.S. personal consumption expenditures (PCE) inflation will moderate from a pace of 4.6 percent over the four quarters of 2022 to 3.6 percent over the four quarters of 2023 - still well above the Fed's 2-percent target.
The Fed will probably need to raise the policy rate more than it has officially recognized, and a soft landing is possible but is not the most likely outcome, Dynan argued, putting the probability of the United States entering a recession in 2023 at two-thirds.
Dynan projected that the unemployment rate will peak next year at 5.5 percent, which is higher than Fed officials' median projection of 4.4 percent by end of 2023, as noted in the Fed's latest quarterly economic projections.
According to the semiannual Global Economic Prospects, global economic growth will step down markedly, with a gain of 5.8 percent in 2021 to be followed by increases of 2.9 percent in 2022 and 1.8 percent in 2023.
Latest comments