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The Federal Reserve’s efforts to reduce inflation could result in a loss of 175,000 jobs per month starting in 2023, according to warnings from Bank of America, and the economy could be about to experience a “mild recession” as early as the first quarter.
The Fed is seeking to balance demand through aggressive interest rate hikes, and while the labor market remained strong and stable through September, Bank of America warned Friday that growth in job creation will be cut in half in the final quarter of the year and rapidly precipitate in early 2023.
According to a report by CNN Business, nonfarm payrolls will begin to shrink early next year as a result of the Fed’s anti-inflationary measures, resulting in a loss of about 175,000 jobs per month during the first quarter.
The financial institution expects the loss to continue throughout 2023.
A “mild recession” is approaching, Bank of America says
Michael Gapen, chief U.S. economist at Bank of America, told CNN that job creation will experience a “hard landing” by the end of the year, and explained that the Fed will not be able to slow the labor market enough for inflation to stabilize without causing significant and persistent job losses.
“We are looking for a recession to begin in the first half of next year,” Gapen said in a phone call, according to the report.
Although the Fed expects the unemployment rate to fall to 4.4% next year, Gapen’s estimates would place it between 5% and 5.5%. This is a price that, according to the specialist, the Fed is willing to pay.
“[The Fed] They’ll accept some weakness in labor markets in order to bring inflation down,” Gapen said, and clarified that the Fed’s insistence on keeping interest rates high is to seek to keep the recession from having a quick rebound, as usual. “We could see six months of weakness in the labor market,” he said.
However, the impact of the recession will not be as great on the labor market as it was in financial crises such as those of 2008 or 2020.
“Although nobody wants to be callous about someone losing their job,” Gapen said, “this could be classified as a mild recession.”
Tomás Lugo, journalist and writer. Born in Venezuela and graduated in Social Communication. Has written for international media outlets. Currently living in Colombia // Tomás Lugo, periodista y articulista. Nacido en Venezuela y graduado en Comunicación Social. Ha escrito para medios internacionales. Actualmente reside en Colombia.