WILL THE U.S. ECONOMY FALL INTO RECESSION IN 2023? ONLY IF THE FED INTENSIFIES CURRENT TIGHTENING POLICIES;

Investors Buying Up Larger Share Of Homes In The Inland Empire

RIVERSIDE, Calif., Oct. 6, 2022 /PRNewswire/ -- (www.ucr.edu) — The U.S. economy has little chance of falling into a recession this year or next unless the Federal Reserve raises interest rates more than they are currently projecting, according to a new forecast released yesterday at the 13^th annual Inland Empire Economic Forecast Conference, hosted by the UC Riverside School of Business.

"Although there are signs of stress in parts of the economy, the wealth created by the excessive fiscal stimulus enacted in 2020 and 2021 continues to drive a consumer consumption binge that will propel the economy forward," said Christopher Thornberg, Director of the UC Riverside School of Business Center for Economic Forecasting and one of the forecast authors. "The only possible thing that could tip things downward in the near-term is if the Fed applies even more aggressive quantitative tightening to control inflation than they're now projecting."

If the Fed stamps out inflation in the near-term by forcefully reducing its balance sheet, it will drive up interest rates, cool financial markets sharply, and possibly create a modest recession next year led by consumer cutbacks, according to the new outlook. However, in the longer term, if Fed action is inadequate, the United States may be looking at several years of very weak growth, with consumers in a relatively poor financial position at the end.

"This is now a balancing act," said Thornberg. "Functionally speaking, policymakers went from maximum acceleration – the stimulus – to maximum braking – tightening by the Fed – over a single year, something that would create turbulence in even the healthiest economy."

Although the new forecast is predicting economic growth to continue in the nation, California, and the Inland Empire in the short run, albeit at a slower pace ("we've cooled from white-hot to red-hot"), in the longer term, the major economic wildcard comes from the growing Federal deficit… and much will depend on how long bond markets are willing to tolerate the excessive level of today's U.S. government debt.

In California, the state is on the brink of a milestone: recovering all the jobs it lost during the pandemic-driven downturn. While many states have already reached full recovery, as of this writing, California still has a 47,300 job deficit. However, it's increasingly likely that the state's job count will be above water by the end of this year, according to the forecast.

Regionally, the share of homes purchased by investors in the Inland Empire is at record highs and likely to increase. This parallels nationwide interest by private equity in purchasing large swaths of residential real estate. Current sale price cuts for homes in the Inland Empire are more of a reality check than a price decline warranting concern. The rate of bidding wars in the region has only dipped to levels seen in the early part of 2020.

Media Contact:
Victoria Pike-Bond
[email protected]

SOURCE UC Riverside School of Business Center for Economic Forecasting and Development

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