'Economic pain' likely in 2023, expert saysSingletary: Expert forecasts 2023 as a year of 'economic pain'

Consumers and investors have many questions about where the economy is headed in 2023.

Will inflation finally return to a decent level and, with it, prices for gas, groceries and other goods? Should we expect higher mortgage rates?

What about retirement accounts? Can investors count on recouping losses seen in 2022?

Are we in a recession, and if not, is one coming?

Federal Reserve Chair Jerome H. Powell was asked what was in store for the economy after yet another rate hike intended to tame inflation.

"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," Powell said on Dec. 14, after the Federal Open Market Committee's final meeting for 2022. "It's just not knowable."

It's impossible to say with precision what the future holds for the economy when it comes to consumer prices, inflation, interest rates or the stock market. Nonetheless, I thought it was worthwhile polling some financial experts on their predictions for the new year.

Greg McBride, chief financial analyst for Bankrate, focused on the Fed's continued use of rate hikes to get inflation down to 2%. The annual inflation rate was 7.1% for the 12 months that ended in November.

"2023 will be the year that all of the Fed's actions in 2022 are felt," McBride said of the central bank's campaign, which included seven hikes ranging from 0.25 to 0.75 percentage points. "Unfortunately, we will feel the economic pain before we get the gain from lower inflation."

McBride said to expect and prepare for an economic slowdown or recession by getting your finances organized now and tracking your spending to hold yourself accountable.

Carolyn McClanahan, a certified financial planner who founded the fee-only Life Planning Partners based in Jacksonville, Fla., sees 2023 as the year of the saver. Rates for deposit accounts have been increasing, and customers should consider shopping around to get higher interest for their checking or savings accounts.

"In 2023, people should make the goal to have a good emergency fund," she said. "Interest rates are great right now."

McClanahan said there might be more talk about "an inverted yield curve," which happens when interest rates for short-term bonds outpace those of long-term bonds.

"In a normal economic environment, short-term interest rates are lower than long-term interest rates," she said. "We can't predict the future, but almost every inverted yield curve has resulted in a recession within a year. Caution, though - past history doesn't always guarantee the future."

If a recession is imminent, what can you do?

"Having a healthy emergency fund is a great way to get through a recession," McClanahan said.

Ernest Burley, a certified financial planner and the owner of Maryland-based Burley Insurance & Financial Services, weighed in on the stock market, which was shaken by several factors - the omicron variant of the coronavirus, the Russian invasion of Ukraine, high inflation, rising interest rates and global supply-chain issues.

"Regarding where the stock market will be next year, nobody knows," he said. "If someone tells you they know, run in the other direction."

Still, Burley has hope investors will see some recovery. Keep contributing to your retirement plan, but make sure your allocations and portfolio are appropriate for your age and include quality investments.

"Steer clear of fringe and very volatile investments," he said. "Keep it simple. Stack cash. Contribute to your long-term investment plan."

Christine Benz, director of personal finance for Morningstar, says she's out of the short-term prediction business.

"Stocks look relatively attractive to our team," she said. "But it's impossible to say whether they've bottomed, especially with recessionary worries coming to the fore. I think investors can feel fairly good about stocks' long-term prospects, but it's still important to have a nice long-term horizon if you're going to hold them, ideally 10 years or longer."

One thing is for sure - 2022 underscored the importance of holding at least some cash investments, especially for retirees and others with near-term spending coming up, Benz said.

"Holding emergency reserves is especially important if we encounter a recessionary environment," she said. "While the employment picture is still quite strong, we could see some weakening there, and job loss is one of the key reasons that people should hold at least some cash."

Dan Egan, managing director of behavioral finance and investing for Betterment, a digital investment advisory firm, urged investors to view 2023 as a gateway year to better times.

"If financial markets teach one consistent lesson, it's that using what recently happened as a guide as to what will come next never ends well," Egan said. "Tomorrow's anxieties will be different from today's. Yes, it sucks right now, but that's generally the inflection point for the next boom period."