Economics

Monthly — January 13, 2023

 

U.S. Economic Outlook: January 2023

 
 
Table of Contents
1. The U.S. Economic Outlook
2. U.S. Forecast Table
3. Changes to U.S. Forecast
4. Sector Analysis
5. International Forecast Tables
6. Calendar

Rocky Road: Dessert or Disaster Ahead?

• The U.S. economy has continued to expand at a solid pace as the calendar turns to 2023. Nonfarm
payrolls increased by 223K in December, and Q4 real GDP growth is tracking at around a 3%
annualized pace. Slower inflation over the past few months, led by falling energy prices and
normalizing prices for pandemic-hit sectors such as autos and airfares, has likely played a role in
sustaining the momentum of the economy.
• That said, not all of the economic data have been so rosy. The ISM indices have fallen into
contractionary territory, the housing market is materially retrenching, households are taking on
credit card debt and labor demand has shown signs of cooling, albeit from elevated levels.
• Furthermore, core inflation remains above the Federal Reserve's 2% inflation target, and
policymakers at the Fed believe there is still work to be done on the inflation fight. As a result,
monetary policy appears poised to become more restrictive in the months ahead, and a full pivot to
rate cuts remains a long ways off. The lagged effect of past policy tightening in combination with
the rate hikes and balance sheet reductions still to come should impart a slowing effect on the U.S.
economy as 2023 progresses.
• On balance, the broad contours of our forecast have not changed materially since our December
update. We look for a 25 bps rate hike at the February 1 FOMC meeting, but we still expect the
target range for the fed funds rate to peak at 5.00%-5.25% and remain there for the rest of 2023.
We also still expect a recession to begin in the United States in the second half of this year, albeit a
slightly more mild one than in our previous forecast.
• In this update, the peak-to-trough decline in real GDP is just over 1%, with a peak unemployment
rate of 5.3%. By early 2024, we look for sub-3% inflation and rising unemployment to push the
FOMC to start cutting the federal funds rate. Intermediate- to longer-term Treasury yields should
move ahead of the actual rate cuts, and we look for the 10-year Treasury yield to finish this year
slightly above 3%.

All estimates/forecasts are as of 1/13/2023 unless otherwise stated. 1/13/2023 6:00:17 EST. This report is available on Bloomberg WFRE
Monthly Economics

Rocky Road: Dessert or Disaster Ahead?

The U.S. economy demonstrated its resilience in the final months of 2022. Real GDP, which grew at
a strong 3.2% annualized pace in Q3-2022, is currently on track for another reading of 3% or so in
Q4. Household consumption appears poised to grow at its fastest quarterly pace of the year in Q4.
Nonfarm payrolls increased by 223K in December, and the unemployment rate dropped to 3.5%,
matching its lowest level since 1969. The S&P 500 index has climbed 11.2% since the start of the
fourth quarter and credit spreads generally have tightened over the same timeframe.
Slower inflation has been a balm for households, which were rocked by rapid price growth over much
of last year. The Consumer Price Index (CPI) rose at "just" a 3.1% annualized rate in Q4, the smallest
quarter-over-quarter increase in consumer prices in two years. Falling energy prices and slower food
inflation played a big role in CPI's deceleration, but normalizing prices for goods and services that were
distorted by the pandemic such as automobiles and airfares also brought a winter chill to previously
hot inflation.
These recent developments are encouraging signs that the U.S. economy could avoid a recession while
getting inflation back to a more acceptable rate. However, the road ahead still looks challenging in
our view. Not all recent economic data have been so rosy. The housing market correction is ongoing,
with home prices declining and existing home sales near the housing crisis lows. Both the services and
manufacturing ISM indices are in contractionary territory, something that has not happened since
2009 when excluding the pandemic-hampered months of April and May 2020. Household balance
sheets are not as healthy as they were a year ago amid lower asset prices, dwindling "excess" savings
and rapidly rising credit card debt. Financial conditions have eased when viewed through the recent
moves in stock prices and credit spreads, but they remain well off their all-time highs/tights, and the
Treasury yield curve is still deeply inverted across numerous maturity points.

Inflation Slowed to Finish 2022 ISM Manufacturing & Services

Quarter-over-Quarter, Annualized Rate, SA Composite Diffusion Indices
12% 12% 75 75
CPI: Q4 @ 3.1% ISM Manufacturing Index: Dec @ 48.4
10% Core CPI: Q4 @ 4.4% 10% ISM Services Index: Dec @ 49.6
70 70
8% 8%
65 65
6% 6%
60 60
4% 4%

2% 2% 55 55

0% 0% 50 50

-2% -2%
45 45
-4% -4%
40 40
-6% -6%
35 35
-8% -8%

-10% -10% 30 30
00 02 04 06 08 10 12 14 16 18 20 22 00 02 04 06 08 10 12 14 16 18 20 22

Source: U.S. Department of Labor and Wells Fargo Economics Source: Institute for Supply Management and Wells Fargo Economics
Although the labor market is still quite strong, there are signs of chinks in the armor here as well. Job
openings peaked at nearly 12 million in March of last year and have subsequently fallen by 12%. The
share of businesses planning to hire, according to the National Federation of Independent Business,
is now back on par with 2019 levels. The trend in initial jobless claims and layoffs/discharges is not
worsening, but it is no longer improving either. Anecdotal reports from the Federal Reserve's Beige
Book suggest there are "scattered layoffs" in some sectors such as technology, finance and real estate,
and planned layoffs appear to be picking up. Finding new employment for recently laid-off workers
is not such a snap either, with continuing claims for unemployment insurance rising over the fourth
quarter.
The Federal Reserve looms large over the 2023 economic outlook, and policymakers at the central
bank still seem intent on hitting the brakes. Monetary policy famously acts with a lag, and we doubt
the full effect of past tightening has been felt yet. It was only 10 months ago the FOMC completed
its bond-buying program and initiated the first rate hike to move the federal funds rate up from near

2 | Economics
U.S. Economic Outlook: January 2023 Economics

0%. More policy tightening appears likely over the next several months even as these past moves are
still filtering through to the real economy. We look for the FOMC to hike the federal funds rate by
25 bps at its February 1 meeting followed by two more 25 bps rate hikes at the March 22 and May 3
meetings.
If realized, these moves by the FOMC would put the target range for the federal funds rate at
5.00%-5.25% by the second quarter of the year. Even after rate hikes end, a pivot toward rate
cuts remains a long ways off. The minutes from the most recent FOMC meeting stated that "no
participants anticipated that it would be appropriate to begin reducing the federal funds rate target in
2023." Beyond the fed funds rate, the Fed continues to shrink its balance sheet by up to $95 billion per
month as it passively reduces its holdings of Treasury securities and mortgage-backed securities. Thus,
even once the last rate hike occurs, monetary policy seems likely to remain tight for the foreseeable
future.
Why does the FOMC seem determined to maintain restrictive monetary policy when inflation is
slowing and there are signs the economy is beginning to wobble? First, although inflation has improved
directionally, it remains above the Fed's 2% target. The core CPI still increased at an 4.4% annualized
rate in the final quarter of last year. Second, even as some sources of inflationary pressure have
improved materially, others still have a ways to go. Labor cost growth is running in excess of what
would be considered consistent with the central bank's inflation target, and we believe policymakers
are looking for slower wage growth as a sign that inflation will sustainably return to 2% over the
medium term.
On balance, the broad contours of our forecast have not changed materially since our December
update. We still expect the target range for the fed funds rate to peak at 5.00%-5.25% and remain
there for the rest of 2023. We also still expect a recession to begin in the United States in the second
half of this year, albeit a slightly more mild one than in our previous forecast. In this update, the peak-
to-trough decline in real GDP is just over 1%, with a peak unemployment rate of 5.3%. By early 2024,
we look for sub-3% inflation and rising unemployment to push the FOMC to start cutting the federal
funds rate. Intermediate- to longer-term Treasury yields should move ahead of the actual rate cuts,
and we look for the 10-year Treasury yield to finish this year slightly above 3%.

Federal Funds Target Rate Unemployment Rate

Upper Bound Seasonally Adjusted
7% 7% 14% 14%
Federal Funds: Dec @ 4.50%

6% 6% 12% 12%
Forecast

5% 5% 10% 10%

4% 4% 8% 8%

3% 3% 6% Forecast 6%

2% 2% 4% 4%

1% 1% 2% 2%

Unemployment Rate: Q4 @ 3.6%

0% 0% 0% 0%
00 02 04 06 08 10 12 14 16 18 20 22 24 00 02 04 06 08 10 12 14 16 18 20 22 24

Source: Federal Reserve Board and Wells Fargo Economics Source: U.S. Department of Labor and Wells Fargo Economics

Economics | 3
Monthly Economics

U.S. Forecast Table

Wells Fargo U.S. Economic Forecast
Actual Forecast Actual Forecast
2021 2022 2023 2024 2021 2022 2023 2024
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product (a) 6.3 7.0 2.7 7.0 -1.6 -0.6 3.2 3.1 0.9 0.3 -2.7 -1.9 0.0 2.8 2.3 2.4 5.9 2.1 0.8 0.3
Personal Consumption 10.8 12.1 3.0 3.1 1.3 2.0 2.3 3.4 1.0 0.8 -1.4 -2.3 -0.9 1.3 2.0 2.0 8.3 2.9 1.1 -0.2
Business Fixed Investment 8.9 9.9 0.6 1.1 7.9 0.1 6.2 5.9 2.0 1.0 -4.3 -5.0 -2.8 0.9 3.3 4.4 6.4 4.0 1.7 -1.3
Equipment 6.1 14.0 -2.2 1.6 11.4 -2.0 10.6 6.0 1.5 0.9 -7.3 -8.9 -5.4 0.4 3.7 4.2 10.3 4.9 1.2 -3.2
Intellectual Property Products 15.6 12.6 7.4 8.1 10.8 8.9 6.8 6.9 2.9 2.0 -1.8 -1.8 -0.4 2.2 3.8 5.5 9.7 8.9 3.4 0.7
Structures 1.9 -2.5 -6.7 -12.7 -4.3 -12.7 -3.6 2.5 1.3 -1.8 -2.4 -2.6 -2.3 -1.5 1.1 1.5 -6.4 -7.3 -1.3 -1.5
Residential Investment 11.6 -4.9 -5.8 -1.1 -3.1 -17.8 -27.1 -23.0 -16.4 -11.3 -5.5 -3.4 -1.4 3.2 4.4 5.7 10.7 -10.5 -16.5 -1.0
Government Purchases 6.5 -3.0 -0.2 -1.0 -2.3 -1.6 3.7 1.3 1.8 1.6 1.4 1.3 1.2 1.1 1.1 1.0 0.6 -0.7 1.6 1.2
Net Exports -1164.5 -1203.9 -1267.5 -1297.6 -1488.7 -1430.5 -1268.8 -1279.4 -1288.3 -1312.7 -1317.6 -1271.6 -1207.1 -1197.7 -1201.0 -1208.5 -1233.4 -1366.9 -1297.5 -1203.6
Pct. Point Contribution to GDP -1.0 -0.6 -1.1 -0.2 -3.1 1.2 2.9 -0.2 -0.2 -0.5 -0.1 0.9 1.3 0.2 -0.1 -0.1 -1.7 -0.7 0.3 0.5
Inventory Change -83.0 -143.6 -48.6 197.6 214.5 110.2 38.7 70.1 84.1 93.4 42.0 11.7 -9.3 52.6 58.4 64.2 -19.4 108.4 57.8 41.5
Pct. Point Contribution to GDP -2.5 -0.8 2.0 5.0 0.2 -1.9 -1.2 0.6 0.3 0.2 -1.0 -0.6 -0.4 1.2 0.1 0.1 0.2 0.7 -0.3 -0.1
Nominal GDP (a) 11.7 13.8 9.0 14.3 6.6 8.5 7.7 6.4 3.1 2.7 -0.6 0.3 2.2 5.0 4.4 4.4 10.7 9.2 3.9 2.4
Real Final Sales 9.2 7.9 0.7 1.9 -1.8 1.3 4.5 2.5 0.7 0.1 -1.7 -1.3 0.4 1.5 2.2 2.3 5.7 1.5 1.2 0.3
Retail Sales (b) 15.1 32.7 15.2 17.4 12.6 8.4 9.4 7.6 3.6 -0.3 -2.5 -4.6 -4.3 -2.9 -1.2 0.5 19.7 9.5 -1.0 -2.0
Inflation Indicators (b)
PCE Deflator 1.9 4.0 4.5 5.7 6.4 6.6 6.3 5.5 4.2 3.0 2.4 2.2 2.2 2.2 2.2 2.1 4.0 6.2 3.0 2.2
"Core" PCE Deflator 1.7 3.5 3.9 4.7 5.3 5.0 4.9 4.7 4.1 3.6 3.1 2.7 2.5 2.4 2.3 2.3 3.5 5.0 3.4 2.4
Consumer Price Index 1.9 4.8 5.3 6.7 8.0 8.6 8.3 7.1 5.3 3.3 2.3 2.1 2.3 2.3 2.4 2.4 4.7 8.0 3.2 2.3
"Core" Consumer Price Index 1.4 3.7 4.1 5.0 6.3 6.0 6.3 6.0 5.2 4.3 3.3 3.0 2.9 2.8 2.8 2.7 3.6 6.1 3.9 2.8
Producer Price Index (Final Demand) 2.9 6.9 8.4 9.7 10.8 11.1 8.9 7.4 4.3 1.7 1.5 1.4 1.8 2.0 2.2 2.3 7.0 9.5 2.2 2.1
Employment Cost Index 2.6 2.9 3.7 4.0 4.5 5.1 5.0 5.1 4.7 4.3 3.9 3.8 3.7 3.6 3.5 3.4 3.3 5.0 4.2 3.6
Real Disposable Income (b) 14.5 -4.4 -1.5 -0.4 -12.8 -5.7 -4.3 -2.4 1.9 2.7 2.6 1.9 0.6 1.0 1.5 2.5 1.9 -6.5 2.3 1.4
Nominal Personal Income (b) 16.1 2.1 4.9 6.9 -3.5 3.2 4.1 4.8 5.2 4.4 3.5 2.2 1.6 2.0 2.5 3.5 7.4 2.1 3.8 2.4
Industrial Production (a) 3.1 6.5 3.5 4.8 4.7 5.0 1.7 0.1 0.2 -3.4 -5.0 -5.8 -4.7 -1.8 1.2 1.3 4.9 4.0 -1.1 -3.2
Capacity Utilization 75.6 77.2 78.0 78.8 79.4 80.0 80.0 79.8 79.8 78.8 77.5 76.1 74.9 74.3 74.2 74.2 77.4 79.8 78.0 74.4
Corporate Profits Before Taxes (b) 16.1 39.2 15.3 22.3 10.9 7.7 5.5 -2.0 -4.0 -6.0 -4.0 3.0 6.0 5.0 6.0 8.0 22.6 5.4 -2.8 6.3
Corporate Profits After Taxes 13.8 37.5 14.0 20.7 6.1 5.0 3.5 -3.3 -2.3 -5.7 -4.7 3.4 6.0 4.9 6.1 8.0 20.9 2.8 -2.4 6.2
Federal Budget Balance (c) -1133 -532 -538 -378 -291 153 -860 -418 -475 -117 -340 -384 -530 -46 -289 -423 -2776 -1375 -1350 -1250
Trade Weighted Dollar Index (d) 104.2 102.8 105.3 108.2 109.7 114.9 121.6 116.7 119.5 118.3 116.8 115.0 112.8 111.3 109.8 108.3 104.6 115.3 117.4 110.5
Nonfarm Payroll Change (e) 645 422 543 637 539 349 366 247 165 63 -33 -175 -242 -100 50 142 562 375 5 -38
Unemployment Rate 6.2 5.9 5.1 4.2 3.8 3.6 3.6 3.6 3.6 3.7 4.1 4.8 5.2 5.3 5.2 4.9 5.4 3.6 4.1 5.1
Housing Starts (f) 1.58 1.59 1.57 1.68 1.72 1.65 1.45 1.32 1.24 1.28 1.32 1.29 1.24 1.29 1.32 1.36 1.60 1.54 1.28 1.30
Light Vehicle Sales (g) 16.7 16.7 13.3 13.0 14.1 13.3 13.4 14.2 15.4 15.8 16.1 16.1 16.7 16.8 17.1 17.1 14.9 13.8 15.8 16.9
Crude Oil - Brent - Front Contract (h) 60.9 68.6 72.5 79.0 95.7 109.8 95.5 87.9 81.7 85.0 82.0 78.0 76.0 80.0 80.0 78.0 70.3 97.2 81.7 78.5
Quarter-End Interest Rates (i)
Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.50 1.75 3.25 4.50 5.00 5.25 5.25 5.25 4.25 3.25 2.75 2.75 0.25 2.02 5.19 3.25
Secured Overnight Financing Rate 0.01 0.05 0.05 0.05 0.29 1.50 2.98 4.30 4.80 5.05 5.10 5.10 4.10 3.10 2.60 2.60 0.04 1.64 5.01 3.10
3 Month LIBOR* 0.19 0.15 0.13 0.21 0.96 2.29 3.75 4.77 5.25 5.35 - - - - - - 0.16 2.41 5.30 -
Prime Rate 3.25 3.25 3.25 3.25 3.50 4.75 6.25 7.50 8.00 8.25 8.25 8.25 7.25 6.25 5.75 5.75 3.25 5.02 8.19 6.25
Conventional Mortgage Rate 3.14 3.04 2.98 3.21 4.27 5.58 6.01 6.36 6.60 6.35 5.85 5.55 5.30 5.15 5.00 4.90 3.03 5.38 6.09 5.09
3 Month Bill 0.03 0.05 0.04 0.06 0.52 1.72 3.33 4.42 4.95 5.05 5.05 4.95 3.95 2.95 2.60 2.60 0.04 2.09 5.00 3.03
6 Month Bill 0.05 0.06 0.05 0.19 1.06 2.51 3.92 4.76 5.00 5.05 5.00 4.65 3.65 2.80 2.65 2.65 0.06 2.51 4.93 2.94
1 Year Bill 0.07 0.07 0.09 0.39 1.63 2.80 4.05 4.73 4.95 4.90 4.70 4.10 3.25 2.80 2.70 2.70 0.10 2.80 4.66 2.86
2 Year Note 0.16 0.25 0.28 0.73 2.28 2.92 4.22 4.41 4.45 4.30 3.85 3.25 2.95 2.80 2.75 2.75 0.27 2.99 3.96 2.81
5 Year Note 0.92 0.87 0.98 1.26 2.42 3.01 4.06 3.99 3.90 3.80 3.35 3.10 2.95 2.85 2.80 2.80 0.86 3.00 3.54 2.85
10 Year Note 1.74 1.45 1.52 1.52 2.32 2.98 3.83 3.88 3.85 3.75 3.35 3.15 3.00 2.95 2.90 2.90 1.45 2.95 3.53 2.94
30 Year Bond 2.41 2.06 2.08 1.90 2.44 3.14 3.79 3.97 3.95 3.90 3.60 3.40 3.35 3.30 3.25 3.25 2.06 3.11 3.71 3.29
Forecast as of: January 13, 2023
Notes: (a) Compound Annual Growth Rate Quarter-over-Quarter (f) Millions of Units - Annual Data - Not Seasonally Adjusted
(b) Year-over-Year Percentage Change (g) Quarterly Data - Average Monthly SAAR; Annual Data - Actual Total Vehicles Sold
(c) Quarterly Sum - Billions USD; Annual Data Represents Fiscal Yr. (h) Quarterly Average of Daily Close
(d) Federal Reserve Advanced Foreign Economies Index, 2006=100 - Quarter End (i) Annual Numbers Represent Averages
(e) Average Monthly Change *3 Month LIBOR will no longer be published after June 30, 2023

Source: U.S. Department of Commerce, U.S. Department of Labor, IHS Markit, Federal Reserve Board and Wells Fargo Economics

4 | Economics
U.S. Economic Outlook: January 2023 Economics

Changes to the U.S. Forecast

Changes to the Wells Fargo U.S. Economic Forecast
q12021 2020 Actual Forecast Actual Forecast
2021 2022 2023 2024 2021 2022 2023 2024
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product (a) 0.00 0.00 0.00 0.00 0.00 0.00 0.31 1.64 0.38 0.37 0.45 1.01 0.00 0.00 -0.01 -0.10 0.00 0.14 0.63 0.27
Personal Consumption 0.00 0.00 0.00 0.00 0.00 0.00 0.54 -0.07 -0.08 0.23 0.15 0.18 0.29 0.02 0.00 0.00 0.00 0.06 0.11 0.15
Business Fixed Investment 0.00 0.00 0.00 0.00 0.00 0.00 1.08 0.20 0.37 -0.01 0.02 1.44 0.56 0.10 0.33 0.00 0.00 0.15 0.35 0.49
Equipment 0.00 0.00 0.00 0.00 0.00 0.00 -0.14 -2.00 0.00 0.00 0.00 2.78 1.13 0.00 0.00 0.00 0.00 -0.14 -0.18 0.85
Intellectual Property Products 0.00 0.00 0.00 0.00 0.00 0.00 1.07 0.00 0.00 0.00 0.00 0.42 0.00 0.00 0.00 0.00 0.00 0.14 0.16 0.08
Structures 0.00 0.00 0.00 0.00 0.00 0.00 3.26 7.00 2.60 0.00 0.00 0.00 0.50 0.80 2.40 0.10 0.00 0.79 2.36 0.58
Residential Investment 0.00 0.00 0.00 0.00 0.00 0.00 -0.28 0.00 5.10 6.70 11.00 9.10 2.10 -0.30 -1.00 -2.50 0.00 -0.04 4.13 4.08
Government Purchases 0.00 0.00 0.00 0.00 0.00 0.00 0.69 0.40 0.79 0.50 0.30 0.10 0.00 -0.19 -0.19 -0.30 0.00 0.11 0.49 0.01
Net Exports 0.0 0.0 0.0 0.0 0.0 0.0 -4.1 60.7 64.2 60.0 60.6 59.0 65.0 64.6 64.8 65.1 0.0 14.2 61.0 64.9
Pct. Point Contribution to GDP 0.00 0.00 0.00 0.00 0.00 0.00 -0.07 1.28 0.07 -0.08 0.01 -0.04 0.11 -0.01 0.00 0.01 0.00 0.07 0.23 0.02
Inventory Change 0.0 0.0 0.0 0.0 0.0 0.0 -10.9 2.1 2.5 2.8 1.3 23.0 -0.3 1.6 1.8 1.9 0.0 -2.2 7.4 1.2
Pct. Point Contribution to GDP 0.00 0.00 0.00 0.00 0.00 0.00 -0.22 0.26 0.01 0.00 -0.02 0.44 -0.46 0.02 0.00 0.00 0.00 -0.01 0.05 -0.03
Nominal GDP 0.00 0.00 0.00 0.00 0.00 0.00 0.42 1.28 -0.65 -0.12 0.06 1.05 0.10 0.05 0.01 -0.18 0.00 0.14 0.18 0.23
Real Final Sales 0.00 0.00 0.00 0.00 0.00 0.00 0.54 1.38 0.37 0.37 0.48 0.57 0.46 -0.02 -0.01 -0.10 0.00 0.15 0.58 0.30
Retail Sales (b) 0.00 0.00 0.00 0.11 0.00 0.00 -0.07 -0.32 -0.24 -0.23 -0.17 -0.03 0.00 0.00 0.00 0.00 0.03 -0.10 -0.16 0.00
Inflation Indicators (b)
PCE Deflator 0.00 0.00 0.00 0.00 0.00 0.00 0.01 -0.09 -0.35 -0.47 -0.59 -0.48 -0.20 -0.06 0.04 0.02 0.00 -0.02 -0.47 -0.05
"Core" PCE Deflator 0.00 0.00 0.00 0.00 0.00 0.00 0.02 -0.05 -0.22 -0.34 -0.42 -0.34 -0.16 -0.03 0.03 0.01 0.00 -0.01 -0.33 -0.04
Consumer Price Index 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.17 -0.42 -0.51 -0.67 -0.57 -0.31 -0.20 -0.03 0.01 0.00 -0.04 -0.54 -0.13
"Core" Consumer Price Index 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.13 -0.25 -0.33 -0.42 -0.31 -0.18 -0.08 0.03 0.06 0.00 -0.03 -0.33 -0.04
Producer Price Index (Final Demand) 0.00 0.00 0.00 0.00 0.00 0.00 0.02 0.12 -0.07 -0.10 -0.20 -0.37 -0.21 -0.22 -0.16 -0.09 0.00 0.04 -0.19 -0.17
Employment Cost Index 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.08 -0.12 -0.14 -0.15 -0.06 0.01 0.09 0.16 0.20 0.00 -0.02 -0.12 0.11
Real Disposable Income (b) 0.00 0.00 0.00 0.00 0.00 0.00 0.02 0.23 2.20 2.30 2.66 2.82 1.29 1.56 1.44 1.50 0.00 0.06 2.50 1.45
Nominal Personal Income (b) 0.00 0.00 0.00 0.00 0.00 0.00 -0.04 0.00 0.77 0.41 0.42 0.48 -0.11 0.30 0.28 0.31 0.00 -0.01 0.52 0.19
Industrial Production (a) 0.00 0.00 0.00 0.00 0.00 -0.18 -0.49 0.01 -0.43 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.09 -0.17 0.00
Capacity Utilization 0.00 0.00 0.00 0.00 0.00 -0.03 -0.13 -0.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.06 0.00 0.00
Corporate Profits Before Taxes (b) 0.00 0.00 0.00 0.00 0.00 0.00 1.06 0.00 -2.00 2.00 2.00 7.00 7.00 1.00 -4.00 -4.00 0.00 0.27 2.22 0.07
Corporate Profits After Taxes 0.00 0.00 0.00 0.00 0.00 0.00 1.04 0.33 -1.60 2.55 1.49 7.18 7.06 0.89 -3.95 -3.99 0.00 0.35 2.38 0.06
Federal Budget Balance (c) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -84.12 43.04 13.04 28.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Trade Weighted Dollar Index (d) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -4.30 -4.25 -4.25 -3.75 -3.25 -2.50 -1.00 -0.50 0.00 0.00 -1.54 -3.88 -1.00
Nonfarm Payroll Change (e) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -1.67 15.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.42 3.75 0.00
Unemployment Rate 0.00 0.03 0.03 -0.03 0.00 0.00 0.00 -0.09 -0.32 -0.29 -0.24 -0.16 -0.16 -0.26 -0.14 -0.39 0.01 -0.02 -0.25 -0.24
Housing Starts (f) 0.00 0.00 0.00 0.00 0.00 0.00 -0.01 -0.09 -0.04 -0.04 -0.04 -0.04 -0.04 -0.04 -0.04 -0.04 0.00 -0.03 -0.04 -0.04
Light Vehicle Sales (g) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.52 -0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.13 -0.07 0.00
Crude Oil - Brent - Front Contract (h) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -2.17 -5.67 -2.00 -2.67 -2.67 -2.00 -1.33 -1.00 -1.00 0.00 -0.54 -3.25 -1.33
Quarter-End Interest Rates (i)
Federal Funds Target Rate 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.48 -0.06 0.00
Secured Overnight Financing Rate 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.63 -0.06 0.00
3 Month LIBOR* 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.28 -0.20 -0.10 - - - - - - 0.00 -0.60 -0.15 -
Prime Rate 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.48 -0.06 0.00
Conventional Mortgage Rate 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.24 -0.15 -0.15 -0.20 -0.10 0.00 0.00 0.00 0.00 0.00 -0.23 -0.15 0.00
3 Month Bill 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.28 -0.10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.48 -0.02 0.00
6 Month Bill 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.14 -0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.59 -0.01 0.00
1 Year Bill 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.07 -0.05 -0.05 -0.05 0.00 0.00 0.00 0.00 0.00 0.00 -0.52 -0.04 0.00
2 Year Note 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.09 -0.25 -0.25 -0.20 -0.05 0.00 0.00 0.00 0.00 0.00 -0.49 -0.19 0.00
5 Year Note 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.04 -0.25 -0.20 -0.20 -0.15 0.00 0.00 0.00 0.00 0.00 -0.36 -0.20 0.00
10 Year Note 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.08 -0.15 -0.15 -0.20 -0.10 0.00 0.00 0.00 0.00 0.00 -0.28 -0.15 0.00
30 Year Bond 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.12 -0.10 -0.10 -0.15 -0.10 0.00 0.00 0.00 0.00 0.00 -0.19 -0.11 0.00
Forecast as of: January 13, 2023
Notes: (a) Compound Annual Growth Rate Quarter-over-Quarter (f) Millions of Units - Annual Data - Not Seasonally Adjusted
(b) Year-over-Year Percentage Change (g) Quarterly Data - Average Monthly SAAR; Annual Data - Actual Total Vehicles Sold
(c) Quarterly Sum - Billions USD; Annual Data Represents Fiscal Yr. (h) Quarterly Average of Daily Close
(d) Federal Reserve Advanced Foreign Economies Index, 2006=100 - Quarter End (i) Annual Numbers Represent Averages
(e) Average Monthly Change *3 Month LIBOR will no longer be published after June 30, 2023

Source: U.S. Department of Commerce, U.S. Department of Labor, IHS Markit, Federal Reserve Board and Wells Fargo Economics

Economics | 5
Monthly Economics

Personal Consumption Expenditures

• We have revised our personal consumption expenditures forecast mildly higher in this update, but
our expectations around the overall trajectory of spending have not materially changed.
We have brought our forecast for personal consumption expenditures in 2023 modestly higher based
primarily on stronger income growth. Specifically, we have raised our real disposable income forecast
in our latest update in part reflecting lower expectations for inflation, as well as some changes made
to underlying income components (Social Security, SNAP benefits) and personal current taxes in
particular.
Stronger real income growth will provide a boost to household spending, but our overall expectations
for the consumer have not materially changed. We continue to anticipate that around midyear
households will face tougher financial conditions as excess savings have largely run dry and delayed
effects of financial tightening begin to bite firms' ability to hire and invest. We expect this financial
uncertainty will then cause households to pull back on spending, contributing to our expectations for a
mild recession.

Investment: Equipment, Intellectual Property Products and Inventories

• We have not materially changed our expectations for capex investment in our latest forecast.
Economic uncertainty and tighter financial conditions should cause capex spending to gradually
slow before slipping negative later this year.
Business investment spending continues to gradually lose momentum. The ISM manufacturing new
orders index remained in contraction territory for the fourth straight month and small business' plans
to increase capital outlays remain under pressure. Beyond demand signals, current production is also
slowing with industrial production down for the third time in four months in November. Equipment
spending is shaping up for a decent end to last year with nondefense capital goods shipments
remaining robust, up 0.8% in November. But, conditions are growing less and less favorable for new
capex investment this year, and we expect the march higher in interest rates and continued economic
uncertainty should cause equipment and intellectual property products to gradually slow before
growth slips negative by the third quarter of the year.

Real Disposable Personal Income Small Bus. Capital Investment vs New Orders
Trillions of 2012 Dollars Net Percent of Firms, Diffusion Index, SA 3-MMA
$20T $20T 50% 100
Real Disp. Personal Income: Nov-22 @ $15.2T Planning to Increase Capital Outlays: Dec @ 23.3% (Left Axis)
ISM Manufacturing New Orders Index: Dec @ 47.2 (Right Axis)
$19T $19T 45% 90

40% 80
$18T $18T

35% 70
$17T $17T
30% 60
Wells Fargo
$16T Forecast $16T
25% 50

$15T $15T
20% 40

$14T $14T 15% 30

$13T $13T 10% 20

16 17 18 19 20 21 22 23 24 00 02 04 06 08 10 12 14 16 18 20 22

Source: U.S. Department of Commerce and Wells Fargo Economics Source: NFIB, Institute for Supply Management and Wells Fargo
Economics

6 | Economics
U.S. Economic Outlook: January 2023 Economics

Investment: Residential
• We have moderated the downturn in residential fixed investment over the course of 2023 as a part
of our improved GDP outlook. While we have reduced our housing starts forecast for this year and
next, we are more constructive on repair and remodeling spending alongside improved building
material pricing and enhanced consumer purchasing power resulting from easing inflation.
Private residential construction spending fell 0.5% in November, marking six straight months of
pullback.The fall in spending was a result of a decline in single-family spending, which outweighed solid
gains in multifamily and home improvement outlays. Multifamily construction has not fallen off at the
same rate as single-family development over the past six months and should help support residential
spending going forward. Spending on renovations and improvements, which has commanded a
growing share of total private residential spending over the past year, grew in October and November
following a brief two-month downturn. Despite resilience in these categories, elevated mortgage
rates, continued weakness in single-family spending, suppressed builder sentiment and a broad-based
decline in building permits suggest residential construction still has room to retreat in the coming
months.

Investment: Nonresidential Structures

• We boosted our forecast for nonresidential structures investment following stronger-than-
expected nonresidential spending during November. Rising financing costs and heightened
economic uncertainty are still likely to produce weakness in the nonresidential sector over the next
few years.
Nonresidential construction spending increased 1.4% in November, driven by an influx of new
manufacturing projects. Notably, the rise in electric vehicle manufacturing and establishment of
several massive new semiconductor manufacturing plants will provide a boost to nonresidential
investment in the near term. Yet we still expect elevated inflation and monetary tightening to weigh to
consumer spending, which will have negative implications for retail and warehousing investment. We
also expect the office market to remain depressed amid the shift to remote work. Our expectation for
payroll declines is likely to put even more downward pressure on office investment. Finally, we expect
elevated gas prices to continue supporting oil and gas drilling even as prices start to trend downward.

Annual Housing Starts Nonresidential Construction Put-in-Place

Month-over-Month % Change, SAAR, Ranked by Level of Spending
Millions
2.4 2.4 Nonresidential 0.9% November 2022
Thousands

Single-Family: 2021 @ 1.13M Manufacturing 6.4%

Multifamily: 2021 @ 0.47M
Total Starts: 2021 @ 1.60M Commercial -0.1%
2.0 2.0 Highway & Street -1.0%
Power 0.9%
Fcst
Educational 0.2%
1.6 1.6
Office 0.4%
Transportation 0.7%
1.2 1.2 Health Care -0.1%
Sewage & Waste 0.5%
Amusement & Recreation -1.3%
0.8 0.8 Water Supply -1.9%
Communication -0.7%
Lodging 0.2%
0.4 0.4 Public Safety -1.6%
Conservation 14.6%
Religious 4.1%
0.0 0.0
00 02 04 06 08 10 12 14 16 18 20 22 24 -5% 0% 5% 10% 15% 20%

Source: U.S. Department of Commerce and Wells Fargo Economics Source: U.S. Department of Commerce and Wells Fargo Economics

Economics | 7
Monthly Economics

Labor Market
• We have made no material changes to our labor market outlook this month. Hiring is slowing, but
at a manageable pace, while the supply and demand for labor are only tip-toeing back toward some
semblance of balance.
• We continue to look for the unemployment rate to rise over the course of this year as the elevated
cost of labor and weaker demand backdrop leads to a contraction in payrolls in the second half of
2023.
The labor market remains exceptionally tight, as evidenced by initial jobless claims remaining near
historic lows, the unemployment rate falling back to 3.5% and average hourly earnings continuing to
rise well in excess of productivity. However, over the past month the jobs market has shown further
signs of cooling off. Payrolls posted their smallest gain in two years, hiring plans and job openings
continue to edge down and average hourly earnings growth is slowing after a weak December
print and downward revisions to November data. We expect the deteriorating trend in job growth
to continue this year following the Fed's aggressive efforts to tamp down demand, with payrolls
contracting in the second half of the year.

Inflation
• With disinflationary forces finally translating into lower core goods prices as well as weaker
commodity prices, we have pared back our estimates for inflation in the months ahead. We
now look for PCE inflation to rise 2.2% year-over-year in Q4-2023, down from 2.7% in our prior
forecast.
• The clearer timing of some payback in goods prices along with the recent drop in energy prices
removes some downside risk to our forecast.
• A sustained return to 2% inflation remains out of sight with the ongoing strength of labor costs.
A myriad of downward pressures on inflation are finally translating into measured disinflation. Slowing
consumer demand, declining transportation costs and efforts to clear out inventories have ushered
in the payback period for the stratospheric rise in goods prices the past two years. A drop in gasoline
and natural gas prices also point to a lower inflation profile than last month and have removed some
downside risk to our forecast ahead. But our outlook for services inflation is little changed. Even as
the latest data show average hourly earnings growth slowing, labor costs are still rising too fast to be
consistent with inflation returning to 2% on a sustained basis. We look for core PCE inflation to slow to
a year-over-year rate of 2.7% by the fourth quarter of this year but to still be running a bit above 2% in
2024.

Nonfarm Employment PCE Deflator & "Core" PCE Deflator

Thousands of Employees, Average Quarterly Change Year-over-Year Percent Change
1,400 1,400 8% 8%
Nonfarm Employment: Q4 @ 247K PCE Deflator: Q3 @ 6.3%
1,200 1,200 7% "Core" PCE Deflator: Q3 @ 4.9% Forecast 7%
Federal Reserve 2% Target Rate
1,000 1,000
6% 6%
800 800
5% 5%
600 600
4% 4%
400 400
3% 3%
200 200
2% 2%
0 0
1% 1%
-200 -200
Forecast
-400 -400 0% 0%

-600 Q2-2020: -600 -1% -1%

-4,449K
-800 -800 -2% -2%
00 02 04 06 08 10 12 14 16 18 20 22 24 00 02 04 06 08 10 12 14 16 18 20 22 24
Source: U.S. Department of Labor and Wells Fargo Economics Source: U.S. Department of Commerce and Wells Fargo Economics

8 | Economics
 U.S. Economic Outlook: January 2023 Economics

Fiscal Policy
• After a protracted battle, Kevin McCarthy was elected speaker of the House of Representatives.
• Speaker McCarthy will need to navigate a challenging path forward with a narrow majority in the
House and Democratic control of the Senate and White House. A need to increase the debt ceiling
before the fall looms large.
Prior to the current Congress, the vote for speaker of the House of Representatives had not gone to a
second ballot in a century. It took until the 15th ballot before Rep. Kevin McCarthy (R-CA) was elected
speaker in the 118th Congress. Republicans hold a very slim majority of 222-212 in the House, and
the speaker fight to open this session of Congress is indicative of the challenges Speaker McCarthy will
face when corralling the 218 votes needed to form a majority on key votes. There are no major fiscal
deadlines in the first few months of the year, but the annual budgeting process needs to be completed
by the start of the next fiscal year on October 1, and at some point, the debt ceiling will need to be
increased, likely in July or August. A showdown over the nation's fiscal priorities could rattle markets
this summer and lead to an inflection point in fiscal policy, as was the case in the 2011 debt ceiling
debate.

Monetary Policy & Interest Rates

• An improving inflation outlook, including somewhat slower wage growth, leads us to expect the
FOMC will hike the fed funds rate at its next meeting by 25 bps rather than 50 bps as in our prior
forecast.
• Yet with inflation still above target and a resilient jobs market, we look for the FOMC to hike by
25 bps at both its March and May meetings. We continue to suspect that the FOMC will hold the
fed funds rate at the cycle's terminal rate of 5.00%-5.25% through the end of this year before
beginning to ease policy in early 2024.
December's data showing slower wage growth and cooler inflation leads us to expect the FOMC will
further slow the pace of policy tightening at its Jan. 31-Feb. 1 meeting and raise the fed funds target
rate 25 bps to 4.50%-4.75%. Yet while the pace of policy tightening is poised to slow, there appears
to be broad consensus among officials that rate cuts are not on the horizon this year. We continue to
expect the fed funds rate to peak at a range of 5.00%-5.25% and for the FOMC to hold its key policy
rate at that level through the end of this year to ensure that inflation is on track to return to 2% for the
long haul. But with the labor market expected to deteriorate sharply late this year and inflation to slow
meaningfully, we look for the FOMC to begin easing policy early next year. As rate cuts come closer
into view in late 2023, we expect the Treasury yield curve to steepen as short-end rates fall further
than long-end rates.

The Debt Ceiling Is Looming Federal Funds Target Rate

Trillions of Dollars Upper Bound, Quarter-End
$31.5T $31.5T 7% 7%
Millions

Millions

Federal Funds: Q4 @ 4.50%

$31.2T $31.2T 6% 6%
Forecast
$30.9T $30.9T
5% 5%

$30.6T $30.6T
4% 4%
$30.3T $30.3T
3% 3%
$30.0T $30.0T

2% 2%
$29.7T $29.7T

$29.4T $29.4T 1% 1%
Debt Ceiling: $31.38T
Debt Outstanding Subject to the Limit: Jan-09 @ $31.32T
$29.1T $29.1T 0% 0%
Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 00 02 04 06 08 10 12 14 16 18 20 22 24

Source: U.S. Department of the Treasury and Wells Fargo Economics Source: Federal Reserve Board and Wells Fargo Economics

Economics | 9
Monthly Economics

Net Exports
• We now project exports to be a more modest drag on headline growth in the fourth quarter due to
a larger-than-expected decline in November imports.
International trade flows collapsed in November. U.S. imports plunged $21.5 billion while exports
declined $5.1 billion. Together, this caused the U.S. trade deficit to narrow substantially to $61.5 billion,
or the smallest deficit in two years. Net exports are now tracking to provide a considerably smaller
drag of roughly 0.2 percentage points on headline GDP growth in the fourth quarter. Overall, we still
expect the trade deficit to widen modestly in the coming months as weaker growth abroad weighs on
demand for U.S. goods and services by foreigners. Imports may stabilize in the near term but should
also remain weak as domestic demand slows.

International Developments & the U.S. Dollar

• We have made modest upward revisions to our growth outlook and modest downward revisions
to our inflation outlook over the past month. We now forecast global GDP growth of 1.8% in 2023
and 2.6% in 2024, slightly stronger than previously. We also see global CPI inflation slowing to 4.8%
this year.
• Compared to a month ago, we have lifted our forecast for the peak policy rate for some key central
banks. We see the European Central Bank's policy rate peaking at 3.25% and the Bank of England's
policy rate peaking at 4.00%. That said, we still forecast G10 central banks will end their rate hike
cycles during the first half of this year.
• A peak in global inflation along with an end to monetary tightening should bring the U.S. dollar's
gains to an end by early 2023, while eventual U.S. recession and Fed easing should see the trade-
weighted dollar soften over the medium term.
• For further reading on the global economy, please see our most recent International Economic
Outlook.
 
We have made moderate revisions to our global economic forecasts over the past month that could
make a still challenging 2023 outlook slightly less challenging. Notably, we now anticipate global
inflation will recede somewhat more quickly than previously expected this year, and we forecast global
CPI inflation of 4.8% for 2023, compared to 5.1% previously. Commodity prices have eased over recent
months, including oil and natural gas prices and there are signs of overall improvement in supply chain
disruptions. Eurozone headline CPI inflation slowed noticeably in December to 9.2% year-over-year, a
pattern of slowing inflation we believe could be repeated elsewhere.
With the squeeze from energy prices on consumer purchasing power easing a touch, our growth
outlook also improved slightly, though we acknowledge 2023 should still be a challenging year for the
global economy. We forecast global GDP growth of 1.8% in 2023 and 2.6% in 2024, up from 1.7% and
2.5%, respectively, a month ago. With slower inflation, real income growth is likely to be less negative
than previously, and there are already hints from improving Eurozone and U.K. PMIs that the outlook
could be less dire than previously expected. Indeed, we now forecast the U.K. economy will contract
1.2% in 2023 (compared to 1.5% a month ago), while our Mexico GDP growth forecast of 1.1% for
2023 is also a touch higher than a month ago. The reopening of China's economy could also boost
global growth prospects as the year progresses.
Given the forecast for slower inflation but firmer growth, on balance, our outlook for the global
monetary tightening cycle has not changed all that much. To be sure, central banks have not yet
sounded the "all clear" on global inflation. The European Central Bank (ECB) raised its policy rate 50
bps to 2.00% at its December meeting, but it was much more hawkish on the inflation outlook than
previously. Accordingly, we now see a higher peak for the ECB's policy rate of 3.25%, while our forecast
peak for the Bank of England's policy rate of 4.00% is also slightly higher than previously. Overall
however, we still believe global central banks are nearing the end of their rate hike cycles and anticipate
that most, if not all, of the G10 central banks will end their tightening cycles during the first half of this
year.

10 | Economics
U.S. Economic Outlook: January 2023 Economics

In our view, an end to rate hikes will coincide with an end to U.S. dollar gains during early 2023. Indeed,
we believe a peak in the trade-weighted U.S. dollar for the current cycle has already been reached.
Over time, we forecast a trend of U.S. dollar depreciation to gather pace. Initially, that depreciation
may be modest during the latter part of 2023, as the U.S. economy falls into recession while other
international economies stabilize. We forecast a somewhat more pronounced pace of U.S. dollar
depreciation in 2024, once the Fed begins cutting its policy interest rate by early next year.

Real Global GDP Growth Major Central Bank Policy Rates

Year-over-Year Percent Change, PPP Weights
7% 7% 6% 6%
Fed Funds Rate: Jan @ 4.50%
6% 6%
ECB Deposit Rate: Jan @ 2.00%
Period Average 5% 5%
5% 5% BoE Bank Rate: Jan @ 3.50%
BoJ Policy Rate: Jan @ -0.10%
4% 4% 4% 4%
BoC Overnight Rate: Jan @ 4.25%
3% 3%
3% 3%
2% 2%

1% 1%
2% 2%
0% 0%
Fcst
-1% -1% 1% 1%

-2% -2%
0% 0%
-3% Global GDP: 2021 @ 6.0% -3% Forecast
Average 1980-Present: 3.4%
-4% -4% -1% -1%
1980 1985 1990 1995 2000 2005 2010 2015 2020 13 14 15 16 17 18 19 20 21 22 23 24

Source: International Monetary Fund and Wells Fargo Economics Source: Bloomberg Finance L.P. and Wells Fargo Economics

Economics | 11
Monthly Economics

International Forecast Tables

Wells Fargo International Economic Forecast

GDP CPI
2021 2022 2023 2024 2021 2022 2023 2024
Global (PPP Weights) 6.0% 2.4% 1.8% 2.6% 4.7% 7.2% 4.8% 3.6%

Advanced Economies
1
5.2% 2.8% 0.5% 1.4% 3.1% 7.9% 4.4% 2.2%
United States 5.9% 2.1% 0.8% 0.3% 4.7% 8.0% 3.2% 2.3%
Eurozone 5.2% 3.3% -0.6% 2.0% 2.6% 8.4% 5.6% 2.1%
United Kingdom 7.4% 4.0% -1.2% 1.5% 2.6% 9.1% 7.6% 2.5%
Japan 1.7% 1.2% 1.3% 1.5% -0.2% 2.4% 1.8% 0.8%
Canada 4.5% 3.5% 0.4% 2.4% 3.4% 6.8% 3.6% 2.1%
Switzerland 4.2% 2.0% 0.1% 2.2% 0.6% 2.8% 1.8% 1.2%
Australia 4.9% 3.6% 1.5% 2.4% 2.8% 6.4% 4.3% 2.9%
New Zealand 5.6% 2.8% 1.1% 1.3% 3.9% 7.0% 4.2% 2.5%
Sweden 5.1% 3.0% 0.4% 2.0% 2.7% 8.0% 5.6% 1.9%
Norway 3.9% 3.5% 0.3% 0.8% 3.5% 5.8% 4.1% 2.5%

Developing Economies
1
6.6% 2.0% 2.8% 3.5% 5.9% 6.5% 5.2% 4.6%
China 8.1% 3.0% 4.9% 4.9% 0.9% 2.0% 2.3% 2.0%
India 8.7% 6.5% 5.7% 6.5% 5.5% 6.8% 4.5% 5.0%
Mexico 4.8% 3.1% 1.1% 2.2% 5.7% 7.9% 5.5% 3.6%
Brazil 4.6% 3.1% 0.7% 2.2% 8.3% 9.0% 5.0% 4.0%
Forecast as of: January 13, 2023
1
Aggregated Using PPP Weights

Source: International Monetary Fund and Wells Fargo Economics

Wells Fargo International Interest Rate Forecast

(End of Quarter Rates)
Central Bank Key Policy Rate
2022 2023 2024
Current Q1 Q2 Q3 Q4 Q1 Q2
United States 4.50% 5.00% 5.25% 5.25% 5.25% 4.25% 3.25%
Eurozone
1
2.00% 3.00% 3.25% 3.25% 3.25% 3.25% 3.00%
United Kingdom 3.50% 4.00% 4.00% 4.00% 3.50% 3.00% 2.50%
Japan -0.10% -0.10% -0.10% -0.10% -0.10% -0.10% -0.10%
Canada 4.25% 4.50% 4.50% 4.50% 4.00% 3.50% 3.25%
Switzerland 1.00% 1.50% 1.50% 1.50% 1.50% 1.50% 1.50%
Australia 3.10% 3.60% 3.60% 3.60% 3.60% 3.60% 3.60%
New Zealand 4.25% 5.00% 5.50% 5.50% 5.50% 5.50% 5.00%
Sweden 2.50% 3.00% 3.00% 3.00% 3.00% 3.00% 2.75%
Norway 2.75% 3.25% 3.25% 3.25% 3.25% 3.25% 3.25%

China3 11.00% 10.75% 10.75% 10.75% 10.75% 10.50% 10.50%

India 6.25% 6.25% 6.25% 6.00% 5.50% 5.00% 5.00%
Mexico 10.50% 11.00% 11.00% 11.00% 10.50% 9.50% 8.50%
Brazil 13.75% 13.75% 13.75% 13.25% 12.75% 12.25% 11.75%
2-Year Note
2022 2023 2024
Current Q1 Q2 Q3 Q4 Q1 Q2
United States 4.15% 4.45% 4.30% 3.85% 3.25% 2.95% 2.80%
Eurozone
2
2.56% 2.75% 2.85% 2.85% 2.80% 2.65% 2.45%
United Kingdom 3.44% 3.45% 3.35% 3.05% 2.75% 2.65% 2.60%
Japan 0.05% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Canada 3.81% 4.00% 3.95% 3.75% 3.35% 3.05% 2.90%
10-Year Note
2022 2023 2024
Current Q1 Q2 Q3 Q4 Q1 Q2
United States 3.48% 3.85% 3.75% 3.35% 3.15% 3.00% 2.95%
Eurozone
2
2.16% 2.40% 2.35% 2.30% 2.20% 2.15% 2.10%
United Kingdom 3.33% 3.50% 3.40% 3.20% 2.90% 2.80% 2.75%
Japan 0.51% 0.50% 0.50% 0.45% 0.40% 0.35% 0.35%
Canada 2.93% 3.20% 3.15% 3.10% 3.05% 3.00% 3.00%
Forecast as of: January 13, 2023
1 2 3
ECB Deposit Rate German Government Bond Yield Reserve Requirement Ratio Major Banks

Source: Bloomberg Finance L.P. and Wells Fargo Economics

12 | Economics
U.S. Economic Outlook: January 2023 Economics

This Month's Economic Calendar

Monday Tuesday Wednesday Thursday Friday
January 9 10 11 12 13
NFIB Small Business Optimism CPI (MoM) Import Price Index (MoM)
December 89.8 December -0.1% November -0.6%
Core CPI (MoM) Consumer Sentiment (U. of Mich.)
December 0.3% December 59.7

Bullard (St. Louis) Speaks Williams (New York Fed) Speaks*

Harker (Philadelphia Fed) Speaks* Harker (Philadelphia Fed) Speaks*
16 17 18 19 20
China GDP (SA, QoQ) PPI Final Demand (YoY) Housing Starts (SAAR) Existing Home Sales (SAAR)
Q3 -1.0% November 0.3% November 1,427K November 4.09M
Retail Sales (MoM)
Martin Luther King Jr. Day November -0.6%
[U.S. Markets Closed] Industrial Production (MoM)
November -0.2% Collins (Boston Fed) Speaks Harker (Philadelphia Fed) Speaks*
Fed Beige Book Williams (New York Fed) Speaks* Waller (Governor) Speaks*
23 24 25 26 27
FOMC Blackout Period Begins Bank of Canada Rate Decision GDP (QoQ, Annualized) Personal Income & Spending (MoM)
Previous 4.25% Q3 3.2% November 0.4%; 0.1% (Income; Spending)
Durable Goods (MoM)
November -2.1%
New Home Sales (SAAR)
November 640K

30 31 February 1 2 3
Consumer Confidence FOMC Rate Decision (Upper Bound) Bank of England Bank Rate Decision Nonfarm Payrolls
December 108.3 Previous 4.50% Previous 3.50% December 223K
Eurozone GDP (SA, QoQ) ISM Manufacturing European Central Bank Rate Decision ISM Services
Q3 0.3% December 48.4 Previous 2.00% December 49.6
Construction Spending (MoM)
November 0.2%
Powell (Chair) Post Meeting Conference

Note: (W) = Wells Fargo Estimate, (C) = Consensus Estimate, * = voting FOMC member in 2023, Purple = Market Moving Releases

Source: Bloomberg Finance L.P., Federal Reserve System, U.S. Department of Labor, U.S. Department of Commerce, Institute for Supply Management, Conference Board and Wells Fargo Economics

Economics | 13
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14 | Economics
U.S. Economic Outlook: January 2023 Economics

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