(The Hill) — For the U.S. economy, 2022 was a wild and somewhat painful year. And 2023 could be even more intense.

A year of stubbornly high inflation, rapid interest rate hikes and war-driven energy shock have weakened the U.S. economy. While the job market remains remarkably strong, many economists say the U.S. is likely to slip into a recession at some point next year.

And even if the nation avoids a recession, Americans will still contend with higher prices, high-interest rates and the unknown impacts of the Fed’s fight against inflation. Political standoffs over government funding, entitlement programs and the federal debt limit also risk tipping the economy into more pain.

Plan for high inflation

Inflation has slowed significantly after peaking this summer at four-decade highs, bringing some minor relief to cash-strapped shoppers. Easing supply chain issues, slower consumer spending and lower fuel costs should help make some goods more affordable next year than last, all while the strong US dollar helps make imports cheaper.

Even so, prices still rose 7.1% annually as of November, according to the consumer price index, an inflation rate well above pre-pandemic norms.

Economists at Goldman Sachs expect prices for goods to fall from current levels next year enough to achieve a negative inflation rate, thanks largely to “more moderate commodity price inflation, falling transportation costs, and downward pressure on import prices,” they wrote in a Monday analysis.

But prices for many services — especially housing and health care — are likely to keep rising after skyrocketing through much of last year, they said.

“We expect a more limited decline on the services side, with core services [inflation] from 5 percent to a still high 4.5 percent by December 2023,” the Goldman Sachs economists wrote.

Federal Reserve Chair Jerome Powell has also warned that the U.S. is far off from price stability and even slower inflation in 2023 will still be hard for many households to stomach.

“There’s an expectation that the services inflation will not move down so quickly, so that we’ll have to stay at it,” Powell said during a press conference earlier this month.

“We may have to raise rates higher to get to where we want to go.”

Brace for higher interest rates

Even if inflation keeps falling, the Fed has made clear it won’t stop hiking interest rates in the beginning of next year and plans to keep them high for the foreseeable future.

Fed officials expect to hike their baseline interest rate range up to a span of 5 to 5.25% by the end of 2023, up from the current range of 4.25 to 4.5 set earlier this month, according to their latest projections. They also don’t expect to cut rates until 2024, though a steep recession could force the Fed to change plans.

“We are doubtful that the goods-driven decline in inflation that we expect in 2023 would be sufficient to give the [Fed] confidence that inflation is moving down in a sustained way, which Powell has said is the criterion for cutting,” economists at Goldman Sachs explained.

“But more than that, we remain skeptical that the [Fed] will cut just for the sake of returning to neutral,” they wrote. 

Job security can be valuable in a recession

A historically strong job market has helped the U.S. economy power through high inflation and defy previous predictions of a slowdown. It has also allowed millions of employed Americans to find new jobs, often with better pay or career opportunities, thanks to a glut of job openings and a much smaller workforce. 

Economists are increasingly fearful a recession could force thousands — if not millions — of Americans out of their jobs next year. The Fed has projected the jobless rate to rise to 4.6% by the end of 2023 as the economy slows under higher interest rates intended to make it weaker.

“Though the economy has not yet suffered a recession, growth has sharply slowed and is weaker than the third-quarter data suggest,” Scott Hoyt, Moody’s Analytics senior director, wrote in an analysis last week.

If the U.S. hits a recession in 2023, recent hires without seniority could find themselves among the first to be laid off. Firms in industries that are hit hard by high interest rates may also face financial pressure, which could threaten jobs in sectors such as technology and real estate. 

“I don’t think anyone knows whether we’re going to have a recession or not, and, if we do, whether it’s going to be a deep one or not. It’s just, it’s not knowable,” Powell said.

Don’t expect the stock market to roar back

Stocks are set to close 2022 with steep losses after setting new record highs toward the end of last year. The Dow Jones Industrial Average is down roughly 9% since the start of 2022, while the Nasdaq composite and S&P 500 index have plunged 35% lower and 20% lower, respectively, over the past 12 months.

The persistence of high inflation, the outbreak of the war in Ukraine and the upward climb of interest rates sapped confidence from the market and momentum from stocks after posting double-digit percentage gains throughout the pandemic.

While 2023 may be calmer, many investment experts see the market bouncing somewhere in between the record highs set in 2021 and the nadir of the past year’s selloff.

“Even in relatively calm years, the market still experiences some ups and downs. For 2023, hopefully, the market’s inevitable waves will prove to be manageable. But I believe we need to brace for the possibility that they will be more treacherous,” Jurrien Timmer, director of global macro for Fidelity Management and Research.

Wall Street will be fixated on when the Fed plans to stop hiking rates and whether the economy will weaken enough to force them to the Fed to curtail its strategy. Fights over government funding and the debt ceiling will also shake confidence among investors, particularly if the U.S. gets close to a potentially catastrophic default on the national debt.