2022 Recap and what's ahead for 2023
This year has certainly been a tumultuous one. Between rising inflation, falling stock prices, and, most importantly for the debt markets: rising rates, 2022 was not for the faint of heart. As we look ahead to 2023, most are expecting a bumpy start, but all is certainly not lost.
This piece walks through our outlook and expectations for the year ahead.
- The Fed (driven by inflation concerns) will continue to be the primary driver in the market. The Fed Funds rate currently stands at 4.25-4.5%, with most expecting further rates hike to 5-5.25% by the end of 2023 before returning to a more moderate 4-4.25% by the end of 2024, 3-3.25% by the end of 2025, and 2.5% over the long run. Any change from these predictions (positive or negative) will immediately impact the credit markets.
- Most companies are well equipped to handle these hikes. Proskauer estimates the default rate to climb to 5% from 1.5% today, well below the default rate during both COVID and the Great Recession.
- While 1H may be slow, most market participants are expecting a pick-up in the 2nd half of the year. As with any market correction, it never lasts forever, as painful as it may feel at the time.
