Economic Overview and Forecast for 2022 Q4

March 1, 2023

In the fourth quarter of 2022, the ongoing battle between inflation and interest rates threatened, but did not thwart, economic growth. Gains in real GDP and a still-strong job market, with unemployment still equal to its low pre-pandemic rate, stood out as bright spots in the economic landscape. Inflation finally showed signs of dulling its roar, with energy prices down and the index for the remaining categories decelerating. However, the Federal Reserve, still awaiting consistent evidence of inflation control, indicated that its target interest rate has not yet peaked. The elevated interest rates have deflated a buoyant housing market and wreaked havoc in the bond market. Despite a slight rebound in the fourth quarter, stocks also suffered the tolls of higher interest rates in 2022.

While GDP has continued to expand, many economists believe the days of growth to be numbered, pointing to a drop in residential fixed investment and slowing economic activity as the fourth quarter went on. The Federal Reserve’s aggressive counter-inflationary policies, particularly interest rate raises, are expected to have a delayed restrictive effect on the economy. FOMC members lowered projections of economic growth to 0.7% in 2023.

Both the stock and bond markets suffered the effects of the inflation-interest rate battle in 2022. While stocks posted their worst-performing year since the Great Recession, higher interest rates drove bond yields up and dragged prices down. The U.S. Treasury yield curve inversion — widely regarded as a harbinger of recession — became more pronounced as the second half of 2022 progressed.

Honkamp Shareholder Rob Leibfried shares the Q4 economic highlights: 2022 Q4 Economic Overview.pdf