Following a year marked by record inflation, rising interest rates and a volatile stock market, many Americans found themselves in a worse financial situation at the start of 2023.
In fact, 50% of Americans said they are worse off than they were a year ago, according to a Gallup poll conducted in January, only the second time since the poll launched in 1976 that 50% or more Americans gave that response. The first was during the Great Recession in 2008 and 2009.
Only 35% of respondents said they are financially better off than they were a year ago, according to the latest Gallup poll. But prior to the COVID-19 pandemic in 2020, "Americans were almost three times as likely to say they were better off (59%) as worse off (20%)," Gallup noted. That indicated one of the highest ratings for those who said they were better off.
The latest news comes as many Americans fear a period of continued high inflation and a possible recession. If you’re struggling in today’s economy, you could consider paying down high-interest debt with a personal loan at a lower interest rate. Visit Credible to get your personalized rate without affecting your credit score.
Inflation may remain high in 2023
Even though inflation spikes have been slowing down in recent months, many Americans are feeling the burden of higher prices and are concerned about inflation levels in 2023. More than half (67%) of Americans expect inflation to rise in the first half of 2023, according to Gallup’s Mood of the Nation poll conducted in January.
The Consumer Price Index (CPI), a measure of inflation, increased 6.4% annually in January. That follows a 6.5% increase in December. Despite the cooling off, inflation remains not far from its June peak of 9.1% and considerably far from the Federal Reserve’s target of 2%.
In an effort to lower inflation, the Fed increased interest rates several times over the past year. In its most recent move, the Fed raised interest rates by 25 basis points during its February meeting. While the move indicates the second consecutive lower rate hike, the Fed says rates may keep climbing in 2023.
"We continue to anticipate that ongoing increases will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2% over time." Federal Reserve Chair Jerome Powell told reporters at a press conference.
The Fed’s February decision brought the federal funds rate to a targeted range of 4.5% to 4.75%, the highest level in 15 years. Any increase to the federal funds rate may result in an increase to interest rates on financial products such as credit cards, mortgages and student loans.
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Recession fears remain
Despite some signs of economic recovery such as recent increases in gross domestic product (GDP) and overall inflation slowing down, many Americans fear a recession.
More than half of Americans (75%) worry there will be a recession in 2023, according to a report by Real Estate Witch published in February. And half of Americans say they will lose everything if a recession occurs. However, there is still a debate over whether the nation experienced one in 2022.
Typically, economists define a recession as two consecutive quarters of GDP decline. This occurred in the first and second quarter of 2022. But despite signs of GDP growth at the end of 2022, many economists predict a recession will hit in 2023.
"Global growth prospects remain anemic, and global recession risk is high," The World Economic Forum said in its Chief Economists Outlook report. "Despite some positive signals in the final months of 2022."
Other experts have also weighed in.
"Economic downturn is likely in the U.S. as most economic indicators currently point to a deceleration at the minimum and/or probable contraction," First National Bank of Omaha said in its 2023 Outlook Report. "Aggressive Fed monetary tightening and higher interest rates may negatively impact economic growth."
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