Economic forecast for 2023: 3 things to know 

January 20, 2023

The first few months will be challenging, but things will look up for investors later in the year.


Last year was a wild ride for the economy and global financial markets: record-high inflation, rising interest rates, and slowing consumer and business spending.

What will 2023 hold? Eric Freedman, chief investment officer at U.S. Bank, expects a choppy start to the year, followed by more favorable conditions for investors. Here are three key things to know.


1. Interest-rate hikes won’t end anytime soon

In 2022, the Federal Reserve (the Fed) raised interest rates six times, and we expect that they’ll continue to raise them for the next three to four months. There are several reasons for that:

  • Inflation remains elevated
  • The job market is very strong
  • We feel Wall Street’s estimates for company earnings are too optimistic at the moment

The Fed is trying to cool the economy with interest-rate increases, but these increases have a delayed impact. They’re aiming for a “soft landing” – slowing the economy without widespread housing market pain, business bankruptcies or high unemployment – but the priority for the Fed right now is curbing inflationary pressures.

General economic activity appears to be slowing down:

  • People are spending less as higher costs for food, heating, transportation and housing takes a bite out of their paychecks
  • Businesses may already be preparing for slowing consumer spending by limiting plans for expansion

The Fed is aiming for an annualized inflation rate of 2%. Once they feel the economy has slowed enough to scale back inflation, interest-rate hikes should come to an end. That will create a more favorable environment for investing in the second half of the year.


2. Consumers can’t endure price hikes forever

The pandemic created the perfect storm for inflation. COVID-19 created major supply-chain issues and shortages, which drove prices up. At the same time, people received several rounds of stimulus payments, which many spent on a now limited supply of goods.

On top of that, Russia’s invasion of Ukraine drove up prices for energy (natural gas and oil) and food. And, as the economy recovered, the job market surged. We now have more jobs than people to do them, leading to higher wages.

We like to say that the U.S. consumer is like a runner with an ankle injury. Consumers can endure some price increases – gasoline prices, food costs, increased rent, higher mortgage payments on new homes, airline tickets and lodging costs – but the longer those price increases remain sticky, which we think they will, the more of an impact it will have.

Savings rates have already dropped to historic lows, and demand for credit is high as people spend money on experiences like travel and inflation takes a bite. In addition, interest-rate hikes have made borrowing money for a house or a car (for consumers) or to buy new equipment or expand (for businesses) more expensive. If the economy continues to slow – should companies lay off workers or inflation continues to rise, for example – spending could slow even more, and we think inflationary pressures will subside.


3. There are places to invest: now and in the future

Right now, we’re recommending investments in select sectors and industries including utilities, infrastructure and energy companies. These defensive-oriented, dividend-paying equities were among the best-performing companies in 2022, and we think that will continue into 2023.

We also believe that high-quality, short-term bonds will deliver favorable returns in 2023. Treasuries offer attractive income, and opportunities in long-term Treasury bonds could improve as interest rates peak and the economy slows.


Want more details? Read our interview with Eric Freedman or take a deeper dive into the markets and economy in our 2023 investment outlook.

Related content

Bull and bear markets: What do they mean for you?

Effects of inflation on investments

How do interest rates affect investments?

Start of disclosure content

Investment and insurance products and services including annuities are:
Not a deposit ● Not FDIC insured ● May lose value ● Not bank guaranteed ● Not insured by any federal government agency.

U.S. Wealth Management – U.S. Bank | U.S. Bancorp Investments is the marketing logo for U.S. Bank and its affiliate U.S. Bancorp Investments.

The information provided represents the opinion of U.S. Bank and U.S. Bancorp Investments and is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific investment advice and should not be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation.

U.S. Bank, U.S. Bancorp Investments and their representatives do not provide tax or legal advice. Each individual's tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.

For U.S. Bank:

U.S. Bank does not offer insurance products but may refer you to an affiliated or third party insurance provider.

U.S. Bank is not responsible for and does not guarantee the products, services or performance of U.S. Bancorp Investments, Inc.

For U.S. Bancorp Investments:

Investment and insurance products and services including annuities are available through U.S. Bancorp Investments, the marketing name for U.S. Bancorp Investments, Inc., member FINRA and SIPC, an investment adviser and a brokerage subsidiary of U.S. Bancorp and affiliate of U.S. Bank.

U.S. Bancorp Investments is registered with the Securities and Exchange Commission as both a broker-dealer and an investment adviser. To understand how brokerage and investment advisory services and fees differ, the Client Relationship Summary and Regulation Best Interest Disclosure are available for you to review.

Insurance products are available through various affiliated non-bank insurance agencies, which are U.S. Bancorp subsidiaries. Products may not be available in all states. CA Insurance License #0E24641.

Pursuant to the Securities Exchange Act of 1934, U.S. Bancorp Investments must provide clients with certain financial information. The U.S. Bancorp Investments Statement of Financial Condition is available for you to review, print and download.

The Financial Industry Regulatory Authority (FINRA) Rule 2267 provides for BrokerCheck to allow investors to learn about the professional background, business practices, and conduct of FINRA member firms or their brokers. To request such information, contact FINRA toll-free at 1-800‐289‐9999 or via An investor brochure describing BrokerCheck is also available through FINRA.

U.S. Bancorp Investments Order Processing Information.