Fears are simmering that inflation (and aggressive interest rate hikes to fight it) could push the economy into recession in 2023. Historically, the combination has indeed caused economic turbulence.
The Federal Reserve this year lifted rates multiple times. Collectively, they marked the biggest increases since the early 1990s. A resulting downturn would pose elevated credit risks for banks. During recessions, borrowers are more likely to default on their loans.
