U.S. Economic Outlook, May 2023

The Northern Trust Economics team shares its outlook for U.S. growth, employment, interest rates, and inflation.

The outlook for the American economy has been clouded by concerns over the health of the banking sector. Shaken by a handful of failures, investor confidence in regional banks remains low. In turn, those institutions have cut back on credit extension, which adds a headwind to growth.

The debt ceiling deadlock is adding to the uncertainty. Even a short-lived stalemate that brings a technical debt default and reduced government expenditures will have wide-ranging ramifications for the economy.

Tight monetary policy and lending conditions will constrain consumer spending, hiring, and investment, leading to weak growth in the remainder of the year. Recession is a possibility, but not our base case.

Enduring apprehensions over financial stability, improvement in inflation readings, and early signs of loosening labor market conditions have likely brought the Fed’s current tightening cycle to an end. However, the disinflationary trend is progressing far too slowly for the Fed to pivot before the end of the year.