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Our Economy in 2023 — What to Expect

In 2023, the Federal Reserve will continue to battle inflation and hike rates reaching its terminal rate in the first half of the year, while inflation slowly dissipates. This will cause economic activity to slow, perhaps to a recession-like pace, causing financial markets to be choppy, yet producing positive returns.

Will the economy experience a soft landing, as the Federal Reserve is suggesting, or will stubborn inflation and rising interest rates cause the economic landing to be a bit bumpy?

We think the economic landing will be bumpy, experiencing a short-lived, mild recession…prepare for landing.

READ — 2023 Will Be the Year of the Earndown: What Every Colorado Small Business Owner Needs to Know

The events over the past few years have led to an economic environment plagued with uncertainty. We expect the economy to slow significantly with a high probability of experiencing a recession. Real GDP may be negative in the second or third quarter, however we expect GDP to be approximately 0.6% for the year. In 2023 there are numerous reasons why we expect the economy to slow and enter a recession:


Persistently high inflation continues to be a threat to economic growth. Even though there are signs that peak inflation was in the spring and inflation is abating, inflation begins the new year at a stubbornly high level. A consolation is that lower inflation and weakening economic growth will convince central banks to slow the hiking cycle, pause, and pivot, moving to cutting rates.

A material risk to our forecast is if inflation moves lower slower than the Fed or the market expects, or if inflation comes down and gets “stuck” at a level higher than the Fed target. This would cause the Fed to react and more than likely shove the economy into a recession.

READ — 5 Ways Small Business Owners in Colorado Can Survive Inflation

Aggressive Monetary Policy

The Fed’s interest rate hiking cycle that began in March has been extremely aggressive. Understandably, since the Fed’s goal is combating spiking inflation. Consumption has been resilient, keeping the hopes of a soft landing alive. High interest rates will eventually weigh on consumers’ consumption behaviors and investment, particularly, residential investment slowing economic growth.

Historically, the only way the Fed orchestrated a soft landing was to lower interest rates. That would suggest the Fed will be hiking rates early in the year and cutting rates in the second half of the year. Unfortunately, the odds of a soft landing are stacked against the Fed.

We believe that the Fed’s aggressive tightening campaign will be the catalyst for a recession. Fed action has a pronounced lag — the full impact on inflation and the economy will not be felt until Spring/Summer of 2023. US consumers have an enormous amount of excess savings, and balance sheets are clean, leading us to forecast the recession will be short-lived and mild.


COVID no longer appears to impact consumer consumption in the US. However, China continues its zero-COVID policy. As China shuts down regions, cities and ports, the global economy suffers due to shortages and inflation. If lockdowns continue, economic activity slows. However, it appears the Chinese will relax their COVID policies in 2023, this could be a positive catalyst for economic growth around the world.

Fixed Income

We think the Federal Reserve will continue hiking short-term interest rates, affecting the economy in 2023. We expect a step-down in rate hikes, back down to 0.25% per hike, and Fed Funds to peak at 5.0%. We then expect the Fed to pause and hold rates constant for the remainder of the year. Along the way, the Fed’s narrative may cause turbulence in the financial markets.

The long end of the yield curve believes the Fed will be successful in fighting inflation. The 10-year Treasury yield of 3.6% at the end of November suggests the financial markets believe that inflation will be transitory. The bond market experienced a difficult year in 2022, we expect the 10-year Treasury yield to end 2023 around 4.0% and once again see positive returns in the bond market.


The financial markets have been discounting a meaningful slowdown in 2023. In September of 2022, the S&P 500, being a leading indicator, was down 25% pricing in an economic slowdown or recession. Given the Fed is hinting at a softer rate-hiking approach, we believe that 2023 will see positive returns in risk assets.

We expect the S&P 500 to end 2023 between 4,200 and 4,400, or a 5-10% total return. We expect a bumpy flight, with market volatility.

The Bottom Line

Prepare for landing. The global economic cycle is transitioning from an environment of accommodative monetary and fiscal policy, supporting moderate growth, to restrictive monetary and fiscal policy, supporting a contraction in growth. We expect the economy in 2023 to be affected by the projected real GDP, which is less than 0.6%. Additionally, anticipate a short-lived, mild recession.

Risk-based assets are expected to produce positive returns and be one of the best-performing asset classes. Our S&P 500 target at end the year is between 4,200 and 4,400 or 5-10% total returns. We expect to see volatility in the equity markets, with corrections greater than 10%.

Interest rates will be on the rise and inflation is expected to subside. We think the entire yield curve will shift higher, Fed Funds will end 2023 around 5.0% and the 10-year Treasury yield will move modestly higher to close the year at 4.0%.

Prepare for landing…buckle up.


KC Mathews, CFA, is the Chief Investment Officer at UMB Bank.

Northwestern Mutual Guest Column — Key Considerations for Selling Your Business

When it comes to your business, understanding how much it is worth can be challenging and involves answering many different questions. Do you plan on selling your business any time soon? If so, who are you planning on selling it to? Whether it’s an employee, family member or strategic buyer, with 2023 right around the corner, now is the time to consider developing a financial preparedness plan for business succession planning.

READ — Exit Planning: New Study Shows Most Colorado Business Owners Are Not Ready to Sell Their Businesses

Value Your Business

The day-to-day challenges of running a business often impede our ability to understand its value and formulate a game plan around getting the outcome we desire. Not only do I encounter this with clients as a wealth management advisor for the Colorado Northwestern Mutual office, but as a business owner myself looking to sell down the road, I have a front-row seat to the same set of challenges.

Rather than basing how much your business is worth on a recent sale of a similar enterprise, or performing a Google search of earnings before interest, taxes, depreciation and amortization (EBITDA) multiples in your industry, consider scheduling an independent valuation with a professional to help you understand where value is attributed. It can be both surprising and enlightening to find out what the outside market values most, or least, about your business.

Once you have a valuation, you have a benchmark to drive and clearly understand future growth, and can spend time performing in those areas that enhance value. Furthermore, when the valuation is updated each year, you receive quantifiable feedback about the changes you are making in the business.

Develop a Financial Plan

Selling your business at the price you desired and finding out later you must unexpectedly return to work due to the market environment, taxes or unforeseen health changes is not ideal.

“Reverse engineering” what your future lifestyle and estate plan requires is the first step, and you can achieve this by working with a certified professional to create a comprehensive financial plan. Some of the considerations for a successful financial plan include:

1. Tax implications

This should address current tax issues, tax that is related to the business sale and tax implications during retirement and upon passing.

2. Asset management

Do not mistake an investment portfolio for a financial plan. How your assets are allocated now, how they will be allocated post-sale, where assets are located (taxable or non-taxable account) and what performance is needed to allow your plan to work are all common themes surrounding asset management.

3. Risk management

In the event of a disability or premature death, where will the money come from to execute on your buy-sell agreement with your partners? Was your life insurance structured as an asset or established for a finite period of time to cover death? Do you have a plan for long-term care during retirement? Protecting your current ability to run the business along with weighing your future desires are all important considerations.

READ — How to Avoid Risk While Running your Business

4. Estate planning

When the financial plan reveals that you will be unable to spend all of your wealth, would it make sense to gift shares of the company to children or future grandchildren before the explosive growth of the share value? There is so much to address on this front that having a plan that works in concert with an estate attorney is essential.

Tax Considerations

Is your business structure today the most tax-efficient for current income and a future exit? Do you have a business structure that will award you the best tax outcome when you plan on eventually selling your business?

In addition to engaging your planner, consider hiring a law firm with knowledge of the tax and estate planning front to work alongside your CPA to determine the best strategy.

Build a Team Around You

In addition to building a management team to help run your business, you should also invest in a comprehensive financial planning team. Now is the time to take a fresh look at what advisors are on your team, who is needed and who needs to be replaced.

In addition to a CPA, a valuation expert and an attorney who can bring business organization, estate planning and tax knowledge to the table, a CERTIFIED FINANCIAL PLANNER™ professional or CFP® will make sure the outcome you desire is never out of focus when tax strategy, business organization, estate planning and differences in opinion surface.

Exiting the business that you started and/or ran for years is complex and emotional. The earlier you begin the methodical process of building a trusted team around you and creating a financial plan, the higher likelihood of receiving the true value of what your hard work has built.

Royce ZimmermanRoyce Zimmerman is the wealth management advisor for Northwestern Mutual.

Four mid-year money moves to make right now

With the pandemic causing the past year to be anything but predictable, it’s understandable to feel unsure of where to start when preparing for the future, especially when it comes to finances.

But, with the half-year mark right around the corner, now is a great time to ask what’s next for you and your financial planning, beginning with a few key steps.

Have–and preserve–cash on hand

Knowing we’re not yet fully past the economic implications of the pandemic, cash is the best line of defense when planning for the unexpected. Liquid cash puts you in a safer, stronger position if there is disruption in the market or your career, helping you avoid the need to sell or rebalance your portfolio at an inopportune time. If and when the market corrects, you’ll also have cash available for a buying opportunity.

With the pandemic driving lower interest rates, consider debt consolidation or mortgage refinancing to add some extra cash to your pockets. While it may take time to receive approval, refinancing can help lower your monthly payments long-term. Any extra money you save through this financial decision can be put toward your cash reserve, including an emergency fund.

Another option is a home equity line of credit, which can provide you with cash on hand in the event of a possible job loss. While employed, request a line of credit from your bank, but hold on drawing from it. In the event of an unexpected impact to your income, you can tap into this to avoid pulling cash from other places, like your investments.

Prioritize portfolio review

As we approach mid-year, take some time to review your investments to ensure your portfolio is properly allocated, with an investment mix that aligns with your financial goals. For example, someone approaching retirement might consider updating their investment mix to own a smaller percentage of stocks, which offer growth over time, but can be less predictable day-to-day. An advisor can help to assess whether you are diversified enough in your investments and provide suggestions on how to rebalance if necessary.

Consider also taking a look at Roth conversions. While you can’t fund a Roth IRA beyond a certain income, a conversion is simply taking your traditional IRA that’s never been taxed and turning it into a Roth. You’ll pay tax on that amount now, rather than in the future, and never pay taxes on it again.

Revisit your budget

With the pandemic causing each of us to shift how we live our day-to-day lives, revisit your budget to confirm it still reflects the reality of where your money is going. Maybe you’ve consistently traded gas costs for a higher monthly utility bill, or cutting back on food and travel costs has freed up funds in your budget.

Review your purchases and expenses over the past few months to get a good sense of where your money is (or is not) going and restructure your budget accordingly. This is also a good time

to evaluate whether any money you’ve potentially saved by cutting costs can be put toward paying off student loans, bulking up an emergency fund or even saving toward a new financial goal.

Be sure your plan is up-to-date

If you haven’t already, schedule a mid-year check-in with your financial advisor. You’ll want to confirm the status of items like your retirement, education and charitable planning and benchmark progress against your goals. If you’ve had significant life changes in the past year, or are planning for changes in the near future, your advisor can help ensure the accompanying financial adjustments are incorporated into your plan.

While there’s no one “right” way to plan for what’s to come, an advisor can support you in staying on track to meet your financial goals this year and the years to come.

Royce Zimmerman is a Wealth Management Advisor with Northwestern Mutual Wealth Management Company. For more information

Raising fiscally savvy adults: 5 habits to learn for school and beyond

Life as a student looks very different this fall—as does the first day on the job for recent graduates. One way to help prepare young adults for whatever lies ahead is by teaching them basic financial skills during these transitional years.

As a father of two kids myself, I’m seeing firsthand the difficulties of planning for such an uncertain future: especially at the start of this very different school year. And while I don’t know what the next few months will hold for my kids’ situation, I have been using this time with them to share key money advice that I learned at a young age.

Whether your children are preparing to go back to school or are staying home longer than anticipated, take advantage of this time to help them develop sound financial habits and prepare for the uncertainties ahead.

Here are a few tips that all young adults should know: 

Track your spending and create a plan. Getting in the habit of tracking expenses will help you identify excess spending and find areas to save. Put together a budget that tracks your expenses and update it regularly as your spending habits shift. As we’ve seen this year, financial situations can change rapidly, so the spending plan should reflect any changes to your lifestyle.

Start saving and create an emergency fund. An emergency fund can provide peace of mind and act as a buffer for unexpected expenses. One of the benefits of tracking your spending is that it will help you find money to save—even if it’s just $20 a month from old recurring subscriptions that you can cancel, the important thing is to start building your savings muscle. At Bank of America we have an account geared specifically for young adults called the Advantage SafeBalance checking account, which allows students to bank without the worry of overdraft or non-sufficient fund fees.

Make savings automatic. With everything going on these days, at some point we’re all likely to forget about sticking to a savings plan. Consider scheduling automatic savings transfers so it’s one less thing on your to-do list. These reoccurring transfers are also a great way to build up an emergency fund—schedule auto-transfers for payday to pay yourself first and ensure you’re making progress toward your savings goal.

Be smart with credit. When used responsibly, credit cards are a great way to manage expenses and build good credit, which can come in handy when signing a lease, for example. To use a credit card wisely, plan out purchases in advance, keep a close eye on your expenses to avoid overspending and strive to pay on-time and in-full. When possible, choose a credit card with rewards that match your existing spending habits. Use your spending tracker to see where you’re spending the most (groceries, online shopping) and do a little research to find out which credit card has the best rewards for that category.

Tackle financial stress, head-on. Being a student is stressful enough under normal circumstances, but add in the financial stress of the coronavirus, and young adults can feel overwhelmed. Confront financial stress by focusing on the main sources of anxiety—maybe it’s paying off credit card debt or saving for future student loans. Set reasonable goals to pursue in the short term and establish an easy to follow, monthly plan.

We’re living through a difficult time, but we’re all working through it together. As young people prepare to go back to school or enter the workforce, having healthy financial habits can make all the difference. Regardless of what your young adult is planning next, take advantage of this time together to help them build the skills that will guide them toward a financially secure future.

Jeremy Simmons is the Consumer Loan Center Manager for Bank of America.

What financial literacy means at every age

While you should always try to make informed financial decisions, it’s especially important to understand the impact of financial education during each life stage. Here are three ways you can sharpen your financial knowledge and understand what financial literacy means during every stage of life.

Financial literacy for children and teens

Now may be the perfect time to address the importance of financial education with children and teens. Many schools incorporate basic financial lessons, but at home you can also introduce financial literacy topics and money management, including the following.

Consider an allowance

It’s important to teach kids how to save. Consider giving children an allowance as a tool to build their financial education. Have them save a portion of their allowance – whether it’s 10% or 20% — and keep them informed of their progress over time. Teaching money basics can be simpler when children have real money to learn and interact with.

Open a youth savings account and establish long-term goals

Children like to be given opportunities to show their responsibility. One way to do just that is setting up their own youth savings account. Not only does this give them a financial foundation, but it also allows them to make measurable savings goals. As children approach their teens, discuss a car-buying goal and keep them involved in the savings process.

Graduate this goal into giving teens hands-on experience with spending. Once they have a car, they will need to make purchases for gas, their weekly outings or their car insurance. If they have a part-time job, make sure they save some of their earnings and appropriately budget the remainder for their expenses.

Have honest financial conversations

Just as it’s important to show and teach how to save, have an open, honest dialogue with your children about money mistakes you have made. Bring your kids into the conversation and discuss how and why the mistake was made, and what you have done or plan to do to resolve the problem.

Learning about finances in your 20s and 30s

As you enter adulthood, you should understand the basics of budgeting and the responsibilities that come with financial independence. Here are ways you can improve your financial literacy during this life stage.

Secure your financial foundation

As you take on expenses such as rent/mortgage payments, phone bills and other monthly payments, map out your monthly budget—and stick to it. Financial literacy at this age sometimes means limiting the nice-to-have expenses, such as eating out or traveling. One of the most important elements of your financial foundation is a savings plan. As a rule of thumb, your savings should include an emergency fund that can cover at least six months of your expenses.

Research large purchases

This life stage is often the first in which you will be faced with making big-ticket purchases and saving for future purchases. Research is an important stage in the purchasing process. Make sure you are getting the best value by shopping and comparing before making a major purchase or taking out a loan for an expensive item.

This also means staying on top of credit card and student loan payments. Try to steer clear of additional debt or missing any payments, which can negatively impact your credit score.

Take advantage of offerings from your employer

As you enter the workforce, learn about the programs your employer offers. Many businesses may offer 401(k) plans, tuition reimbursement and wellness incentives that can help cut costs. Even if retirement is 40 years away, saving now can make a difference in the long-term growth of your portfolio.

Strategies for your 40s and 50s

As you enter this age range, financial education and focusing on the long term is more important than ever. Three ways to improve your financial literacy at this life stage include the following.

Consider increasing retirement contributions

Your 40s and 50s may be your peak earning years. There are many ways you can maximize your earnings during this period, such as using your professional know-how to start a side business, seek a promotion, or search for career advancements. These can help increase your income with the goal of saving more for your retirement.

Eliminate your debt

While you may have accumulated debt from student loans, car purchases or a mortgage, now is the time to trim debt. In today’s rate environment, it may make sense for you to refinance your home loan, which could reduce your monthly mortgage payment, and cut your monthly spending. In general, the financing decisions you make at this stage can impact your long-term plan and goals.

Adjust your budget as your life changes

As you get older, you may have children move out and gain financial independence. You might also downsize your home. Or, in some cases, you may assume additional financial responsibilities if your parents require support in their golden years.

Whether you experience an increase or decrease in your spending, adjust your budget and savings. Take advantage of a financial partner to help navigate a more robust savings strategy and walk through the steps you need to take as you near retirement.

Staying savvy in your golden years

As you enter this life stage, continue building your financial literacy by taking the below steps.

Establishing a post-retirement budget

Once you retire, your budget will look completely different. While this can be unsettling if you have been following the same general budget for decades, it’s an important and necessary transition. Work closely with a financial partner to determine your strategy as you start tapping into your retirement funds and create an entirely new budget for your changing finances. At this stage, you need to know how much you can continue to save.

Determine when to start using Social Security

The minimum qualifying age for taking Social Security is 62, but you may not want to opt in immediately. If you already have a strong retirement plan, you should consider waiting until you reach the full retirement age, which can allow you to receive larger payments.

Keep investing

Reaching retirement does not mean you should abandon your investment strategy. Maintain an investment strategy that allows you to address your future financial needs.

While you should work with a financial partner to determine the mix of savings and investments you are most comfortable with, both are important to make sure you continue earning money after retirement.