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Investors consider the odds and impact of a recession in 2023

Yahoo Finance columnist Rick Newman discusses the debate over the possibility of a soft landing following the Fed's latest rate hike and whether or not the U.S. economy is headed for a recession.

Video Transcript

RACHELLE AKUFFO: With the new Fed forecast out, investors are debating the chance of a soft landing for the economy. Now Yahoo Finance's Rick Newman has that story. Rick, how's it looking?

RICK NEWMAN: I think these last two weeks are a pivot from believing that we might be lucky enough to get a soft landing, to know we're not going to get a soft landing. It's going to be a hard landing. I look at dozens of economic reports every week. And that seems to be the recurring theme this week. And let's just spell out what we're talking about here. A soft landing would mean that the Fed manages to get under-- get inflation under control. And unemployment doesn't really go up very much, and the economy doesn't contract.

So now what investors seem to be thinking-- and this is reflected in the wipe-out we're seeing in markets this week-- is, no. In order to get inflation under control, unemployment is going to have to go up. Bank of America, just as one forecaster, said they think by the end of next year, unemployment rate will have risen from 3.7% right now to 5.6%.

That is the pain that Jerome Powell, the Fed chair, has been talking about. So this does not automatically mean we're going into a recession. But I think what we're seeing in markets is a belief that the odds of recession are certainly getting a lot higher.

DAVE BRIGGS: And Rick, like most of us, Jerome Powell needs skill, and he needs luck. And say he gets a little luck, the end of hostilities in Ukraine. What would that mean for all of us and avoiding a hard landing?

RICK NEWMAN: So what's going on in Ukraine mostly affects energy markets. And it's really interesting because oil prices, I mean, we've been talking about it all day. Oil prices, which went well over $100, over 120 over the summer based on fears of what might happen in that war, now below $80. So we've seen oil coming down surprisingly low. Now natural gas is a different story. Europe's having a big problem there.

But this inflation story does not seem to be emanating from Ukraine anymore. It seems to be things that are built into the supply chain and labor costs. So this is the reason you hear the Fed chair talking about-- I mean, he says it obliquely. But we just had a guest say, the Fed wants more people to lose their jobs because then demand for a lot of goods will soften, and prices will come down in theory.

So it's very perplexing. And this is all happening at a time when consumer confidence actually has ticked up recently. And the reason that has happened is because the number one thing consumers care about or seem to care about is gas prices. So gas prices are down. People have been feeling better about that. And President Biden's approval rating has actually gone up. And now we're seeing this turn in markets. So we just can't get it right here.

RACHELLE AKUFFO: That does seem to be the trend. A big thank you there. Rick Newman, have a great weekend.