Inflation was the bogeyman of 2022. Here at the dawn of 2023, the big question for the U.S. economy is whether or not — and when — we'll dip into a recession this year. In that respect, the bogeyman could become more of a friend.
Look for inflation to provide an underappreciated boost to the economy this month, and that should push out recession risk until later in the year, at the very least. Social Security, Internal Revenue Service tax brackets, pay scales for government workers and minimum wages in some states adjust for inflation this month, just as they do every January. But because 2022 was the highest year for inflation in 40 years, the one-time adjustments that happen this month will pack a bigger punch than they have in decades.
Adding them all together will boost household incomes by around $200 billion, or 1% of disposable personal income. Measured against a Federal Reserve determined to slow the economy to rein in inflation, that isn't enough to prevent a recession in 2023, but it should mean the risk of recession in the first quarter, and likely the second, is very low.
