More likely than not, the U.S. economy will enter a recession this year, Bankrate’s Fourth-Quarter Economic Indicator poll found.

The U.S. economy has a 64 percent chance of contracting in 2023, according to the average forecast among economists. Just two experts (or 15 percent) said the financial system could avoid a downturn, putting the odds of a recession at 40 percent. Meanwhile, one economist arrived at 100 percent odds — signifying he was absolutely certain of a recession.

Recession odds for 2023 have jumped sharply as the Fed’s massive tightening campaign has unfolded. The fourth-quarter forecast is up from just 33 percent in the first-quarter poll and 52 percent in the second quarter.

Forecasting is a practice destined for failure almost as much as predicting the weather or a hurricane’s path. Yet, economists have rarely been so aligned on a recession’s probability like this. That could have more to do with history than anything. The last time the Fed combatted surging inflation, it intentionally manufactured a recession by raising interest rates and slamming the brakes on the economy.

If a much-feared recession does emerge as the year unfolds, this would seem to be the most widely predicted contraction of the economy that I can remember. It would also be essentially self-inflicted by the Federal Reserve, which has been aggressively raising interest rates in the cause of slaying the inflation monster.

— Mark HamrickBankrate senior economic analyst

Key takeaways on recession odds from Bankrate’s Fourth-Quarter Economic Indicator survey

  • The U.S. economy has a 64% chance of entering a recession this year.
  • Just 15% of economists said the chances of a downturn this year are less than 50%.
  • The unemployment rate is projected to hit 4.7% a year from now, according to the average forecast among economists. That would be the lowest unemployment rate of any recession, if a downturn does indeed occur.

Why recession odds are high this year

Recession fears are far and wide right now. Almost 7 in 10 Americans (or 69 percent) said in an August Bankrate poll they’re worried about a possible recession by the end of the year. At the same time, few Americans have an optimistic outlook for the year, with 66 percent in a separate December survey saying they don’t see their finances improving this year.

Fed officials since the 1980s haven’t approved as many rate hikes in a single year as they did in 2022. Rate-sensitive sectors felt the impact of higher rates almost immediately. Mortgage rates more than doubled while stocks slumped. The year ahead is when the full effect of those rate hikes could be felt, spreading to consumer spending and the job market.

“As the lagged effect of higher interest rates begins to show greater effects in 2023, it is likely that there will be a greater cautionary impact on consumer spending leading to a reduction in expenditures,” says Nayantara Hensel, senior economic advisor at Seaborne Defense. “The resulting decline in demand for products will lead to lower labor demand, as reflected in declining job openings and increasing job losses, thus increasing the unemployment rate.”

The Fed is shifting from massive rate hikes to more traditionally sized ones to avoid damaging the economy too much in its inflation fight. But it’s not so much the rate hikes anymore that risk bringing the most disastrous economic consequences. Instead, it’s how long Fed officials have to hold rates historically high to get the job done.

“The amount of monetary tightening necessary to rebalance the labor market and bring inflation down to target will likely require at least a mild recession by historical standards,” says Scott Anderson, chief economist and senior vice president at Bank of the West.

Regardless of whether the Fed’s rapid tightening ensues a recession, economists note it’s unlikely to be as disastrous to consumers’ wallets as the coronavirus pandemic or the Great Recession before it.

Unemployment surged to 10 percent in the aftermath of the financial crisis, while joblessness soared to the highest level since the Great Depression (14.7 percent) because of coast-to-coast lockdowns to curb the novel virus’s spread. Both Fed officials and economists see a 4.6 percent unemployment rate a year from now.

“We expect the recession to be mild because there are no glaring imbalances in the economy’s balance sheet,” says Ryan Sweet, chief economist at Oxford Economics. “Looking at the catalysts for each recession since 1948, those associated with balance sheet shocks — such as the Great Recession — are more severe, last longer and are followed by weaker recoveries. Currently, household balance sheets in aggregate are in great shape, nonfinancial corporate balance sheets are also healthy and state and local governments are flush with cash.”

Hear from the experts

Our working assumption is that the economy follows a ‘soft landing’ path, even though the risks are obviously skewed downward given the rarity of successful soft landings. We plan to only incorporate a recession into our forecasts when we see evidence in the monthly data that a downturn is likely, and incoming data are actually still tracking a respectable rate of growth.

— Mike Englund, chief economist, Action Economics

The U.S. economy continues to display resilience, but underlying momentum is slowing, and recent economic indicators are revealing an increasingly bifurcated economy. While services activity remains robust, the housing sector is tumbling under the weight of elevated mortgage rates and manufacturing activity is stalling — signaling a broader economic downturn is likely coming. We expect the combination of persistent inflation, tighter financial conditions and weaker global growth will tip the economy into a mild recession in the first half of 2023.

— Gregory Daco, Chief Economist, EY

Risks of a recession in the U.S. remain uncomfortably high moving into 2023, although risks to the forecast appear to be improving. The labor market continues to moderate, as does inflation, which has allowed the Fed to slow the pace of hike rates heading into next year. The sooner the Fed is able to cease increasing rates, the better chance the economy has of avoiding a downturn.

— Dante DeAntonio, director of economic research, Moody's Analytics


The Fourth-Quarter 2022 Bankrate Economic Indicator Survey of economists was conducted Dec. 12-19. Survey requests were emailed to economists nationwide, and responses were submitted voluntarily online. Responding were: Ryan Sweet, chief economist, Oxford Economics; Yelena Maleyev, economist, KPMG LLP; Odeta Kushi, deputy chief economist, First American Financial Corporation; Lawrence Yun, chief economist, National Association of Realtors; Scott Anderson, executive vice president and chief economist, Bank of the West; Bernard Markstein, president and chief economist, Markstein Advisors; Mike Englund, chief economist, Action Economics; John E. Silvia, founder and president, Dynamic Economic Strategies; Robert Frick, corporate economist, Navy Federal Credit Union; Dante DeAntonio, director of economic research, Moody’s Analytics; Nayantara Hensel, PhD, senior economic advisor, Seaborne Defense LLC; Gregory Daco, chief economist, EY; and Bill Dunkelberg, chief economist, National Federation of Independent Businesses.