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More than half of Americans are pessimistic about the economy in 2023 (iStock)
Amid high inflation, many Americans fear the country will slide into recession this year. About 75% say they worry someone is on the way, according to a Real Estate Witch survey. And 69% of Americans believe the country is in a recession. And more than half (55%) say they would lose everything in a recession.
Typically, economists define a recession as at least two consecutive quarters of decline in gross domestic product (GDP). That happened in the second quarter of 2022. However, the National Bureau of Economic Research, which is the government body responsible for declaring a recession, has yet to make a decision about last year.
And even though GDP grew in the fourth quarter by 2.9%, it didn’t change many people’s outlook on the economy. In fact, 63% are pessimistic about how the economy will fare in 2023.
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Consumers using credit cards to fight inflation
As inflation soared, many Americans turned to credit cards to deal with rising expenses. In fact, credit card balances grew to $931 billion in the final quarter of 2022, according to the latest Credit Industry Insights report from TransUnion.
“Bank card balances and originations continue to grow as consumers look for ways to cope with inflation, and this is especially true for Gen Z consumers, who have seen a 19% increase in originations annually and a 64% increase in balances over the same period.” , Paul stated. Siegfried, TransUnion’s senior vice president and credit card business leader, said in a statement.
Additionally, credit card delinquencies have increased. Credit card delinquencies are expected to increase to 2.6% at the end of 2023, according to the 2023 Consumer Credit Forecast from TransUnion. That’s up from 2.1% at the end of 2022. Delinquency rates could reach levels not seen since 2010, the report said.
“Rapidly rising interest rates and stubbornly high inflation coupled with fears of a recession represent the latest in a series of significant challenges that consumers have faced in recent years,” Michele Raneri, vice president of US research and consulting at TransUnion. “So it’s no surprise that we’re seeing sharp increases in delinquency rates for credit cards and personal loans, two of the most popular credit products.”
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Inflation may remain high in 2023
Inflation rose 6% in February on an annual basis. And although inflation is rising more slowly than in previous months, many Americans are still feeling the brunt of higher prices. The price of food at home rose 10.1% year-on-year, according to the Consumer Price Index (CPI), a measure of inflation.
To reduce inflation, the Federal Reserve raised interest rates. Most recently, the Fed raised interest rates by 25 basis points, bringing the federal funds rate to a target range of 4.5% to 4.75%, the highest level in 15 years. In addition, the country’s central bank said it expects to continue raising interest rates in 2023, albeit at a slower pace.
“We continue to expect that continued hikes will be appropriate,” Fed Chairman Jerome Powell said at a November 2022 press conference. 2%. Furthermore, we are continuing the process of significantly reducing the size of our balance sheet. Restoring price stability will likely require maintaining a restrictive policy stance for some time.”
However, the collapse of investment bank Silicon Valley Bank on March 10 raised questions about how the Fed will proceed at its next meeting between March 21 and 22. Goldman Sachs updated its forecast and no longer expects the central bank to raise interest rates next.
Increases in the federal funds rate can also affect interest on products such as credit cards and mortgages. If you’re worried about interest rate hikes, you could consider refinancing your home loan to lower your monthly payments. Visit Credible to speak with a mortgage refinance expert and get your questions answered.
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