Ingram’s January 2023

Investors and business leaders alike have reasons to be wary in 2023. Caution Ahead

by Dennis Boone

If you think of the nation’s economy as a road and various performance indicators as a traffic signal, we enter 2023 staring at a yellow caution light. It’s not red—yet. But it could get there. So say economists and wealth advisers whose collective wisdom in a New Year suggests that, in a business and investment climate battered in 2022 by higher interest rates, inflation, and a ridiculously tight labor market, the worst may be already behind us. That doesn’t mean we should expect a light-speed lift-off from borderline recessionary GDP levels; it does mean fears of another Great Depression—or even a repeat of the Great Recession—just might be unfounded. “Our cautionary tone is centered on market vola tility, the day-to-day grinding of the capital markets,” says Bill Greiner, chief economist for Mariner Wealth

periods where the economy was in recess and left in eight or nine months, where markets didn’t correct by 40-50 percent like in ’08, but, top to bottom, more like 20-30 percent.” Interest rates are at 10-year highs as the Fed attempts to strangle an inflationary beast more robust than any in 40 years. But there’s a consensus that, while the Fed sees more work to do on that front, the incremental changes won’t be as jarring as the 75-basis point hikes we saw in 2022. “We believe short-term interest rates will trend higher through mid-year with the Fed Funds rate likely peaking between 5 percent to 5.5 percent at midyear,” says Commerce Trust’s Scott Colbert. “Longer-term interest rates will also rise, gradually pulled higher by shorter-term rates, but peak much earlier in the year as the economy slows, inflation cools, and the probability of a recession increases.” Longer-term rates will likely drift higher from where they are today, Colbert believes, but “we think we’ve already seen the absolute near-term peaks in lon ger-term Treasury rates last October when the 10-year Treasury rate closed at 4.25 percent and the 30-year Treasury rate at 4.40 percent.” Stepp & Rothwell’s Ken Eaton doesn’t disagree. Even if the Fed does keep short-term interest rates higher for longer, he says, “the bond market is already putting pressure on longer-term rates because it has a pretty good idea of the rate that will bring the economy into equilibrium. Therefore, unless the Fed does some thing unexpected to impact long-term rates, like dump its inventory of mortgage-backed securities back into the market, we expect longer-term interest rates to stay stable or even fall from here.” One big early driver of inflation in 2022 was the price of oil, which had taken a sharp upward turn in 2021 and was up 76 percent even before Russia invaded Ukraine in February. That drove another 60 per- cent pop in oil prices, peaking north of $126 a barrel.

Unless the Fed does something unexpected ... we expect longer-term interest rates to stay stable or even fall from here.” — Ken Eaton, Stepp & Rothwell “

Advisers. “My outlook for the U.S. economy, for both inflation and economic growth, GDP, has become more guarded—that’s a good way to frame it over the past half year, compared to summer.” Six months ago, he said, his team was projecting a 35 percent probability of a recession descending on the nation within the next year; that’s up now to 55 percent. But it’s still nowhere near 100 percent. “I consider a light version of a recession to unfold, as compared to ’08-’09, which was a heavy balance sheet-oriented recession,” Greiner said. “This is more an income-statement recession similar to 1990 and

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January 2023

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