An economic downturn in the U.S. this year is all but guaranteed as the Federal Reserve puts the brakes on the economy and clamps down on inflation.

But while nobody knows exactly how much of a decline the country is in for, fears of a historic recession may be overblown.

Bank CEOs, including JPMorgan Chase’s Jamie Dimon, as well as top economists ranging from NYU’s Nouriel Roubini to Mohamed El-Erian, president of Queens’ College at Cambridge, have forecasted economic doom and gloom for the U.S. in 2022, in response to the Fed’s dramatic cycle of interest rate hikes that began last year.

Dimon has even warned about a potential economic “hurricane” while El-Erian went as far as predicting a “profound economic and financial shift” as the global economy sits on the brink of an epochal transformation.

But for all the foreboding forecasts, not every economist is convinced the U.S. will spin out into a severe recession in 2023, or even that it will enter one at all.

The most likely scenario could be something more akin to a “slowcession,” according to Mark Zandi, chief economist at Moody’s Analytics and a leading voice and presidential adviser in U.S. economics.

Zandi was one of the first economists to predict the 2008 financial crash, and his research directed the federal government’s response to the crisis.

In 2023, U.S. unemployment may rise and growth could come grinding to a halt, Zandi wrote in a report released on January 3, but the economy may still be able to skate past an outright recession. Zandi and Moody’s “baseline outlook” for the year is that the Fed’s interest rate hikes will bring down inflation without triggering a recession, a so-called soft landing for the economy.

“[The Fed] will be able to raise rates high enough, fast enough, to sufficiently quell the wage and price pressures, but not so high and fast that it knocks the wind out of the economy,” Zandi wrote. “This is a scenario that we might well call a slowcession—growth that comes to a near standstill but that never slips into reverse.”

The “slowcession” economy

Zandi conceded that all is not well in the U.S. economy in 2023.

Recession risks are “uncomfortably high” owing to the rapid pace of Fed rate increases—seven last year and more planned for this year—and runaway inflation. “Under almost any scenario, the economy is set to have a difficult 2023,” he wrote.

But at the same time, the slowdown in growth and economic activity may not be as severe as many observers fear, as the economy has so far shown few signs typical of a looming recession.

The first factor boosting the chances of a slowcession are low oil prices, Zandi wrote.

Prices for oil surged to a 10-year high of $120 a barrel early last year after the Russian invasion of Ukraine, contributing to energy inflation in the U.S. and $5 a gallon gasoline across the country.

But prices have leveled off dramatically since then, partly owing to releases from the U.S. Strategic Petroleum Reserve.

Zandi said oil prices are now leveling at near $80 a barrel, slightly higher than Moody’s “equilibrium” estimate for oil prices. Oil prices are likely to remain volatile throughout the year depending on energy demand in China and potential supply cuts in Russia, Zandi added, but he noted that the global oil market is so far “adjusting admirably” to disruptions, and he expected it to continue doing so for the rest of the year.

Inflation overall is set to “finally fade away” this year, Zandi wrote, as supply-chain bottlenecks ease up and China reopens to the world.

In December 2022， China lifted its strict zero-COVID policy that contributed to the supply shortages and price rises that afflicted the global economy throughout the pandemic, and while its economy may take some time to “get back to full speed,” Zandi predicted global supply chains to resettle by this summer once the current wave of COVID-19 infections in the country passes.

Zandi also cited recent evidence of slowing wage and job growth in the U.S., more signs that inflation is past its peak.

Finally, Zandi noted the financial health of American consumers, banks, and businesses as an indicator that a slowcession is more likely than a recession.

Zandi wrote that few of the typical “imbalances” commonly seen in the buildup to a recession, such as overextended credit lines or overbuilt real estate, are manifesting in today’s economy, boosting the chances of a soft landing when growth starts slowing down.

The most encouraging sign, according to Zandi, is the relative health of consumers and shoppers, which he referred to as the “fire wall” protecting the U.S. economy from a severe recession. Consumer spending in the U.S. has shown recent signs of slowing slightly, but still remains strong despite rising inflation and recession anxiety.

“Shoppers are the fire wall between an economy in recession and an economy that skirts a downturn. While the fire wall is sure to come under pressure, particularly as financially hard-pressed low-income households struggle, it should continue to hold,” Zandi wrote.

Recession still a very real risk

While Zandi is leaning toward a slowcession as the most likely outcome for the economy, he acknowledged a number of “serious threats” make a recession a very real risk, and the Fed will have to be careful in 2023 to make sure the U.S. avoids an unnecessarily steep and prolonged economic contraction.

“Most significant is the prospect of the Fed making an error in setting monetary policy, sparking a recession that would have been unnecessary to achieve its inflation target,” he wrote.

Zandi cautioned the Fed not to raise its funds rate past 5% in its efforts to bring inflation back down, lest it trigger an “unnecessary” recession. The Federal funds rate currently sits at a target range of 4.25% to 4.5% after December’s rate hike.

The Fed signaled late last year it would reconsider the size and frequency of rate hikes in 2023 depending on inflation data, although indicated pausing increases is off the table for now.

But while the risks are real, Zandi cautioned against pessimism and warned bad feelings about a recession could become a “self-fulfilling prophecy” if left unchecked, urging consumers and businesses not to lose faith in the economy.

“It is important not to be Pollyannish, but it is also important not to convince ourselves that a recession is inevitable. It is not,” he wrote.