The decelerating U.S. economy will likely stumble into a mild recession, or severe slowdown, in the coming months as the world’s post-pandemic boom keeps fading and interest rates push higher. Prudent investors should take heed and plan accordingly as they revisit their portfolios in 2023.

That is the most likely scenario, or Base Case, for the domestic economy going forward, according to AMG’s new Three-Year (2023-2025) Economic Outlook. The outlook contains seven distinct scenarios, ranging from optimistic to pessimistic, for clients to consider. Here are the highlights of the “Flatline” Base Case:

  • The recession is investment driven, rooted in higher interest rates. Consumer spending is no saving grace, and the dip in real output dents the labor market. The subsequent recovery is tepid, and growth remains below potential through 2024. On a brighter side, supply chain knots continue to untangle and inflation slows in 2023.
  • The recovery in the labor market concludes, even as some prime-aged workers opt—at least temporarily—to remain on the sidelines while job openings remain plentiful. Wage inflation slowly eases without triggering a continual wage-price spiral as the unemployment rate remains above its non-inflationary minimum.
  • The Federal Reserve continues raising interest rates in the first half of 2023 with the federal funds rate peaking in the second quarter. Monetary policy eases slightly during the latter part of 2024. Long-term Treasury rates cease their upward march as term premiums normalize and inflation expectations stabilize.
  • Effects on longer-run rates are not dramatic and yields plateau as the yield curve remains mildly upward sloping. Financial markets maintain confidence that durable—if unimpressive—economic growth will persist. Equity risk premiums expand moderately, while before-tax corporate operating earnings experience annualized mid-single-digit percentage growth into 2025.
  • Crude oil prices advance at trend-growth rates as producers adjust production capacity. The resulting upward pressures from energy prices has a limited impact on headline consumer price inflation. Investment in high-cost production prospects continues to decline and oil-consumption growth trends in the advanced economies remain flat.
  • Global growth outside of the United States remains tenuous at best. Uneven policy responses to the COVID-19 pandemic across the globe result in adverse effects for longer than expected, choking economic recovery in many nations via intermittent broad lockdowns and business interruptions throughout the first half of 2023. European economies continue to untether from Russian energy, and China’s growth sputters. About a third of the world’s economies—including some key U.S. trading partners—experience outright contractions.


To receive a full copy of the AMG’s new Three-Year (2023-2025) Economic Outlook, contact your AMG advisor or submit a request for more information.


AMG’s opinions are subject to change without notice, and this report may not be updated to reflect changes in opinion. Forecasts, estimates, and certain other information contained herein are based on proprietary research and should not be considered investment advice or a recommendation to buy, sell or hold any particular security, strategy, or investment product.

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