Can US Political Drama Heighten Chances of a Recession in 2023?

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The continuing political drama in the United States, typified by ideological splits, policy debates, and nearing government budget deadlines, has generated fears about the country’s economic stability. In this article, we will look at the complicated interplay between US politics and the economy, and if the present political environment is increasing the likelihood of a recession in 2023.

The US government has temporarily avoided a shutdown, thanks to President Biden signing a bill to fund it until mid-November. The shutdown, originally set for October 1, was narrowly averted. However, the US is still facing the looming possibility of a recession.

Why Can the US Still Fall Into Recession?

Historically, optimistic forecasts of a “soft landing” often precede economic recessions. Predictions tend to follow linear assumptions, while recessions are non-linear events, making them a challenge to anticipate.

Moreover, monetary policy operates with long lags, and the full effects of the Federal Reserve’s interest rate hikes may not be felt until late 2023 or early 2024. These hikes could negatively affect stocks and housing markets.

And yet, that’s still doesn’t paint the whole picture as there are many elements in play which could negatively impact the country’s GDP growth. A closer look reveals that the US is still facing an auto strike, the resumption of student loan repayments, rising oil prices, a steepening yield curve, a global economic slowdown, and government shutdown risks.

Lastly, the possibility of a credit squeeze might still be on the table as the Fed’s survey of loan officers indicates banks are imposing stricter criteria for loans. This trend could lead to reduced business investment and hiring.

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