Once again, all we know for certain is that most major forecast will be wrong. If we look at the forecasts for 2023 at the end of the 2022, we would have seen private economics expecting a shallow recession with overall real growth for 2023 coming in below 1%. The Fed forecast was even lower for 2023. The actual real growth for 2023 will be above 2.5% for the year. What happened?
We started the year with a major banking crisis, the largest since the GFC. This was far from just a few regional banks getting into some deposit trouble. It required a large amount of extra liquidity from the Fed and was a complete surprise to the market.
Inflation followed a transitory story path so that by the end of the year we are looking at something in the range of 2-3% inflation for the key PCE measure yet we are at a Fed funds that is just under 5.5%. Neither path was predicted by the consensus.
Logistics seems to be returning to normal and labor markets seem to be ending the "Big reshuffling" or the "Great Resignation" from the COVID period. We are still not at a normal labor market, but it is getting close.
Median wealth for households is hitting record highs, but if you don't have a house, you are unlikely to be able to afford one as the home market is in gridlock. Mortgage rates are high, yet we are not seeing a large decline in home prices.
Bonds are still in the "Big Bond Drawdown", but equities are seeing a great year as investors are looking beyond any recession and forecasting lower rates in 2024.
Wars and geopolitical uncertainty are still high, but that does not mean markets care.
So, once again do not make a new year's forecast which you know will not likely come true.
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