The Fed will cause unnecessary harm and other predictions for 2023

by Mark Weisbrot

Here are eight predictions for the coming year in accordance with a hallowed tradition that I have previously not honored. If some of the supporting facts below seem unfamiliar, it could be because they have not received the attention they deserve. But they are real.

First, some good news about the U.S. economy:

  • Inflation will likely continue to fall until it becomes obvious that it is no longer a serious concern. Inflation (as measured by the Consumer Price Index) has already fallen precipitously over the last five months; annualized inflation has been 2.5% (July through November), as compared with 11.8% for the preceding five months (February through June). If this looks surprising, it’s because the number most reported in the media is for November 2021-November 2022, which is 7.1%. This is true, but not as informative about what’s been happening more recently.
  • The Fed will continue to harm the economy by raising interest rates unnecessarily. That’s the bad news. The economy will slow and unemployment will rise. The latest survey of economists finds a 70% probability of a recession. But, whether it’s technically a recession or “just” a slowdown, the pain will be real for many employees and job-seekers. Sadly, the Fed has caused most of the U.S. recessions since World War II by raising interest rates.
  • Pressure on the Fed to change course will increase as the economy worsens. This will come from Democrats — e.g., the Progressive Caucus in Congress. Republicans have a stake in a bad economy for the 2024 elections; in 2010, they helped ensure that unemployment was 9.4% in October, and Republicans picked up 63 seats in Congress a month later.
  • Congress will intervene again to pressure the White House to end U.S. involvement in the Saudi war in Yemen. Since 2015, the U.S. military has participated in a war led by Saudi Arabia that has killed hundreds of thousands of civilians, including many thousands of children. More than 6 million Yemenis are facing starvation because of the war. Congress can block U.S. involvement in Saudi airstrikes — which would very likely end the war — by invoking the War Powers Resolution. Congress did so twice under President Donald Trump and recently threatened a new vote, forcing the Biden administration to come to the table. In 2023, Congress will help end the war.
  • Congress will pressure the Treasury to allow for massive international aid to developing countries — at zero cost to the United States — as the world economy worsens. The Treasury Department is currently blocking hundreds of billions of dollars of aid to developing countries that would come from the International Monetary Fund. This has zero cost to the U.S. government and involves no loans or conditions. It could save hundreds of thousands of lives. The House of Representatives will pressure Treasury to allow it at the Fund, as it did successfully last year.
  • Starbucks workers will win a first contract. Interim CEO Howard Schultz does not appear ready to engage with a labor union. But once a majority votes for union representation — as workers have done at more than 260 Starbucks locations — the employer is required by law to bargain in good faith. With a wave of strike actions, backing from the Service Employees International Union and a stronger National Labor Relations Board, Starbucks workers will get their first contract next year — and change the company for the better.
  • The NBA and its players will not opt out of their current collective bargaining agreement. The current contract between the league and the NBA Players Association has an opt-out clause that allows either side to end it a year early. The opt-out deadline was Dec. 15; that’s been kicked down the road to Feb. 8, a sign that talks on a new agreement are progressing. The league is due for a new TV contract after the 2024-2025 season, which could be worth more than $75 billion. Most likely, both sides will want to know more about how that package looks before crafting a new labor deal.
  • Oscars 2023 — Spielberg could win. Do you know what people in Hollywood really like? Movies about people in Hollywood. “The Fablemans,” Steven Spielberg’s semi-autobiographical tale, could be the front-runner for Best Picture, Best Director, or both.

Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington. He is the author of “Failed: What the ‘Experts’ Got Wrong About the Global Economy.”